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Stocks Rise as Investors Expect Big Rate Cut

Stocks opened higher Tuesday as investors are anticipating that the Federal Reserve will deliver an unusually large rate cut.

The Dow Jones Industrial Average was up more than 200 points, with all 30 components higher -- an unusual opening ahead of Fed meeting. Typically, stocks idle for most of the day until the central bank issues its decision.

General Motors was the Dow's top advancer, with a gain of more than 6 percent, followed by Citigroup and JP Morgan .

"The stock market recovers six mo in front of an economic recovery," David Katz, chief investment officer at Matrix Asset Advisors, told CNBC. "There are a lot of great buys out there today."

Robert Millen, co-portfolio manager at Jensen Portfolio, added that, it may take some time to realize it, but, "Investors will make most of their money in a bear market."

The market is now pricing in a 100 percent chance that the Fed will lower its target for the federal-funds rate by a whole percentage point -- to 2 percent from 3 percent -- with an outside chance that it will lower rates by one-and-a-quarter percentage points, according to fed-funds futures. The Fed's decision is expected to be announced at 2:15 ET today.

In economic news, wholesale prices rose 0.3 percent, as expected. Excluding volatile food and energy costs, core producer prices increased 0.5 percent. U.S. homebuilding projects started in February fell by 0.6 percent to a higher-than-expected annual rate of 1.065 million units. Building permits, an indicator of future building activity, dropped 7.8 percent.

Shares in Asia climbed, with Japan rising 1.5 percent, while major European markets recovered about half of Monday's losses in anticipation of today's Fed meeting.

A sense of optimism permeated the market, stemming from the market's ability to avoid a huge selloff Monday despite deep troubles in the financial sector.

"If you were going to see a real wipeout day I think yesterday was the high probability day to see it," said George Dowd, of Newedge. "I'm encouraged on the equity market, I think on the dollar as well."

Earnings from the investment-banking sector came in better than expected, giving the sector a much-needed shot in the arm. Financials were the biggest gainers among 10 key S&P sector indexes, jumping 2.5 percent. The S&P financial index is down 33 percent for the year.

Goldman Sachs, the largest U.S. investment bank by profits, reported its earnings were cut in half, but topped estimates. Net income fell to $1.51 billion, or $3.23 a share, from $3.2 billion, or $6.67 a share, a year earlier, as the investment bank logged steep losses on corporate loans and other assets.

Lehman Brothers, which has been the center of speculation that it might be the next domino to fall in the credit crunch, reported its earnings plunged, but beat expectations. Net income fell to $489 million, or 81 cents a share, from $1.15 billion, or $1.96 a share, a year earlier. Lehman, which was long seen as a bond house but is now more diversified, cited lower bond-trading revenue for the sharp drop. Its shares rebounded 17 percent, almost as much as the 19 percent it lost in the previous session.

Investors will be keen to see how other major investment banks are faring after Bear Stearns was bailed out by the Fed and JP Morgan and sold for just $2 a share.

It was a day of rebounds in the financial sector. Among other notable names that recovered following Monday's pounding are: National City , MF Global and Swiss bank UBS . UBS, like Lehman Brothers, has also been rumored as potential casualty of the credit crunch.

Fannie Mae and Freddie Mac also recovered, with both stocks gaining more than 12 percent.

Homebuilders also got off to a strong start after Hovnanian Enterprises CEO Ara Hovnanian expressed optimism that the industry was ready to recover on CNBC's "Squawk Box." Hovnanian called on the Fed and Congress for aggressive action.

"They need to bring stability, whether it's through getting more availability of mortgages or whether it's bringing a tax credit into play so consumers can afford to buy a home or feel good about buying a home," Hovnanian said.

Tech stocks advanced, with 90 percent of the Nasdaq 100 moving higher, after some optimistic outlooks from a few big tech names.

Yahoo rose after the Internet giant said it's positioned for "accelerated growth" in the next three years and expects to stay ahead of analysts' forecasts. The company reiterated that Microsoft's roughly $44 billion bid, which works out to $31 a share, undervalues the company.

Dell gained after founder Michael Dell said he expects the company's growth rate to exceed the rest of the industry, helped by strong growth in Asia.

"We expect to continue to grow faster than the industry, particularly in Asia," Michael Dell told a news conference during a visit to South Korea to meet clients and suppliers.

This Week:

TUESDAY: Fed meeting
WEDNESDAY: Morgan Stanley earnings; Visa IPO; Crude inventories; New York Auto Show
THURSDAY: Weekly jobless claims; Philly Fed report; FedEx earnings; Bond market closes early
FRIDAY: Financial markets closed for Good Friday holiday

Send comments to cindy.perman@nbcuni.com.