Bank stocks and the broader markets rallied Tuesday after the Federal Reserve cut the federal funds rate to an all-time-low range of 0.25% to zero.

The KBW Bank Index rose 10.38%, the Dow Jones industrial average rose 4.2%, and the Standard & Poor's 500 rose 5.14%.

"The market is looking beyond what is going to be a horrible fourth-quarter earnings report from the banks, and is looking instead another six months down the road, for an environment that may show better credit development due to the kinds of support that the Fed is providing," said Gary Townsend, the chief executive at Hill-Townsend Capital LLC.

Scott Anderson, a senior economist at Wells Fargo & Co., wrote in a note Tuesday, "For the first time in its history the Fed has decided to establish a target range for the Fed funds rate of between zero and 0.25 percent, effectively making 0.25 percent its interest rate ceiling."

Mr. Anderson said the central bank is signaling that "massive injections of about $1 trillion into various credit facilities, bank re-capitalization, and the payment of interest on bank reserves make an explicit target nearly impossible to achieve."

Bank stocks were up across the board. JPMorgan Chase & Co. rose 13%, Citigroup Inc. 11.2%, Bank of America Corp. 7%, Bank of New York Mellon Corp. 10.4%, and State Street Corp. 8.8%.

Citi said Tuesday that it plans to sell its NikkoCiti Trust & Banking Corp. to Mitsubishi UFJ Trust and Banking Corp. for about $277 million, according to a Dow Jones report. Citi also offered early retirement to employees at its Japan brokerage unit, Nikko Cordial, and about 1,000 accepted, according to the news service.

Other gainers Tuesday included U.S. Bancorp, up 8.9%, KeyCorp, 12.4%, Fifth Third Bancorp, 9.3%, SunTrust Banks Inc., 11.6%, and PNC Financial Services Group Inc., 7%.

Goldman Sachs Group Inc. gained 14.4% despite reporting its first quarterly loss since going public a decade ago. It cited losses in its trading and investment businesses.

For the period that ended Nov. 30, Goldman reported a net loss of $2.12 billion, or $4.97 a share, compared with net income of $3.22 billion, or $7.01 a share, a year earlier.

Analysts on average had expected a loss of $3.73 a share, according to Thomson Reuters.

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