Stocks staged a solid rally Tuesday after the Federal Reserve delivered a deep interest-rate cut, calming investor worries, and said it may do it again.

The blue-chip Dow Jones industrial average climbed 150.09 points, or 1.59 percent, to 9,591.12, the highest close since the blue-chip index finished at 9,605.5 on Sept. 10, less than 24 hours before the Sept. 11 attacks.

The Nasdaq composite jumped 41.44 points, or 2.31 percent, to 1,835.09, and the Standard & Poor's 500 rose 16.02 points, or 1.45 percent, to 1,118.86.

As was widely expected, the Fed Reserve slashed its key interest rates by a half percentage point in an attempt to counter any further damage to the U.S. economy.

"It's good to see the Fed remains aggressive. The little bit of surprise is that there are indications that rates are going to go even lower than 2 percent," said Barry Hyman, chief investment strategist, Ehrenkrantz King Nussbaum in New York.

The Fed cut its fed funds rate — a benchmark for short-term interest rates — for the tenth time so far this year to 2 percent, its lowest level in 40 years. It was the third rate reduction since the Sept. 11 attacks.

"I think that's still good news," Hyman said. "I think that lower interest rates is clearly one part of the puzzle for economic recovery. It gives consumers and businesses plenty of flexibility."

The broader market has rallied almost 10 percent since mid September on optimism this year's rate cuts will help get the economy back on its feet. Lower interest rates are good for stocks as they cut borrowing costs and can spur business development. 

The blue-chip Dow got a boost from Hewlett-Packard , which shot higher after Hewlett family members, who own a 5 percent stake in HP, said they oppose a merger agreement between HP and Compaq Computer , pushing an already fragile deal to the verge of collapse.

The companies both said they would go ahead with their merger plans. HP soared $2.92 to $19.81, accounting for about 13.5 percent of the Dow's gain, while Compaq fell 49 cents to $8.50.

Struggling energy giant Enron got walloped again, slumping as low as $9.39 and finishing down $1.50 at $9.67 — its lowest level since 1992. The stock, which was the most active on the New York Stock Exchange, has fallen in recent weeks after regulators announced a probe into its finances. Worries about its failure to disclose information about its transactions and its deteriorating credit rating have sharply eroded investor confidence.

The S&P 500 has rallied almost 16 percent since hitting a three-year low on Sept. 21 on optimism the Fed's interest-rate cutting will help get the economy back on its feet.

"We're walking a tightrope of poor economic data, but we're holding out hope that quick stimulus will manufacture a turnaround," said Bryan Piskorowski, market commentator for Prudential Securities.

The Fed has cut rates three times since the Sept. 11 attacks on New York and near Washington, D.C., heightening hopes it will do all it can to help the economy recover.

Wall Street bond dealers now expect the Fed to go even further, cutting short-term rates by another quarter of a percentage point to 1.75 percent at its next meeting on Dec. 11, according to a Reuters poll.

Cisco was the most active on Nasdaq, gaining 57 cents to $18.47. The data-networking bellwether reported a sharp drop in profits that nonetheless beat analysts' estimates and said sales rose from the previous quarter, suggesting the worst of the sector's woes may be over. The company also forecast revenues will be flat to slightly higher in the next quarter.

Semiconductor stocks like high-tech giant Intel Corp. were also buoyant. Intel rose $1.29 to $28.25, and the Philadelphia Stock Exchange's semiconductor index jumped 3.37 percent.

Microsoft Corp. gained $1.51 to $64.78 after three more U.S. states said they have agreed to back a settlement reached by the Justice Department last week in the software giant's long-standing antitrust case.

Walt Disney Co. weighed on the blue-chip Dow average, falling 41 cents to $18.75, after investment bank Goldman Sachs cut its rating on the media giant, citing an anticipated drop in the company's 2002 earnings.

TMP Worldwide Inc., the parent company of online job search site Monster.com, rose $1.01 to $34.04 after posting earnings that squeaked by analysts' expectations as the company trimmed costs to adjust to the downturn in business following the Sept. 11 attacks.

Advancing issues narrowly led decliners 3 to 2 on the New York Stock Exchange. Volume picked up late in the session, coming to 1.33 billion shares, slightly higher than 1.19 billion Monday. 

The Russell 2000 index gained 5.24 to 442.78. 

Overseas, Japan's Nikkei stock average gained 1.8 percent. In Europe, Germany's DAX index dropped 1.00 percent, Britain's FT-SE 100 gained 0.1 percent, and France's CAC-40 slipped 0.5 percent.

Reuters and the Associated Press contributed to this report.