The technology-driven Nasdaq notched up its biggest single gain in one day yesterday, rising by more than 14 per cent, following the US Federal Reserve's dramatic move to cut its key interest rates by half a per cent.

In an unexpected move, the Fed cut interest rates to 6 per cent, triggering an immediate reaction on the Nasdaq where shares had been taking a battering recently. It was the Nasdaq's biggest rise in one trading session since its foundation in 1971. The move galvanised US stock markets with all the heavy losses of Tuesday being recovered. Before the rates announcement, the Nasdaq composite index was trading 1.5 per cent below its overnight close, but soared as a wave of buying hit the technology sector. Within half an hour of the move, the Nasdaq was up more than 11 per cent.

At the close, it was up 324.82 points at 2,616.68. The Dow Jones, 60 points lower before the move, closed 299.6 points higher, or 2.81 per cent up.

The recovery on Wall Street is likely to give European stock markets a kickstart this morning. Most European markets lost 1 to 2 per cent yesterday after Tuesday's heavy losses on Wall Street.

The Fed's rate cut and the resulting recovery on Wall Street came too late to help European markets yesterday.

Fed policymakers had been expected to hold a conference to announce a rate cut, following the publication of employment numbers on Friday. After the publication of far weaker than expected purchasing numbers on Tuesday, it decided to act early, however.

The last time the Fed announced a rate cut between meetings was after the Asian crisis and the near collapse of the hedge fund, Long Term Capital Management.

Mr Jim Power, investment director at Friends First, said the move emphasised the Fed's determination to shift the US economy away from recession and ensure a soft landing.

He added that more bad US news was probably on the way and the euro would continue to appreciate over the month, while stock markets would have a bumpy ride.

According to Mr Aziz McMahon, economist at Ulster Bank, the euro should reach parity against the dollar within four weeks. Yesterday the euro fell back just below $0.94 having traded as high as $0.9571, its strongest level since July 6th.

The Fed is thought likely to cut rates by a further 1.25 percentage points over the rest of this year bringing them down to 4.75 per cent.

The Fed said that even with last night's moves, it still saw the risks in the economy weighted toward weakness, clearly signalling that more rate cuts are likely, possibly at the January 30th meeting.

The long-term economic growth trend is still tilted towards Europe. Unemployment in the euro zone held at 8.8 per cent in November, the lowest level in more than eight years. US unemployment data is expected tomorrow but analysts say it will probably rise to a four-month high. Analysts said data over the last month has confirmed the growing strength of the euro economy. The single currency has now risen by more than 15 per cent against the dollar from its low point last October.

US growth is expected to slow to 3.5 per cent this year from 5.2 per cent in 2000, according to the OECD. At the same time, the euro region may slow to 3.1 per cent in 2001 from 3.5 per cent.