Stronger-than-expected results from investment banks Goldman Sachs and Lehman Brothers, which managed to weather the market turbulence, also contributed to an ebullient mood among traders.
US stocks vaulted higher in the wake of the Fed's action to cut key rates by 75 basis points as the Dow Jones Industrial Average rocketed 3.51 percent to 12,391.66.
The tech-heavy Nasdaq composite meanwhile jumped 4.19 percent to 2,268.26 and the broad-market Standard & Poor's 500 index soared 4.24 percent to 1,330.74.
The aggressive move by the Fed, which lowered its federal funds rate to 2.25 percent, fueled hopes that the central bank is finally getting its arms around what has seemed an intractable credit crunch that has been threatening the global economy.
Brian Bethune, economist at Global Insight, said the Fed's multi-front battle has not only cut rates but helped provided liquidity to financial firms being squeezed.
"The Fed is not only providing low-cost oxygen to the markets at a