Shortly after the Fed decision, blue-chip stocks jumped as much as 78 points, then tumbled

88 points lower before rising again in the final trading hour.

"Investors are facing a challenging environment. On the one hand, they want higher liquidity associated with lower interest rates, but on the other hand, they don't want the negative implication ... that the economy is becoming bleaker," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

The Dow Jones industrial average rose 92.74, or 1.1 percent, to close at 8,771.01, according to preliminary calculations, having gained 106.67 yesterday.

The broader market also finished higher. The Nasdaq composite index rose 17.69, or

1.3 percent, to 1,418.86. The Standard & Poor's 500 index gained 8.37, or 0.9 percent, to 923.76.

The Fed voted unanimously to lower the federal funds rate to 1.25 percent, citing the economy's "current soft spot." The funds rate is the interest banks charge each other on overnight loans and is the Fed's main lever for influencing the economy.

While investors ultimately cheered the news, analysts remained doubtful about the effectiveness of the rate cut.

"Consumer confidence is low with the prospect of a lackluster holiday shopping season," said Sung Won Sohn, chief economist at Wells Fargo & Co. "Businesses are shell-shocked from a series of body blows; they are reluctant to hire people, build inventories or purchase capital goods."

"This move could also backfire by announcing to the world that the economy is so weak that Chairman (Alan) Greenspan has to use what little ammunition he has left to shore up the economy," he said.

Kevin Caron, market strategist at Ryan, Beck & Co., agreed.

"I think overall the notion that a rate cut will have a meaningful impact on the economy is more psychological than anything else," he said. "But there's enough in the mix today to help the market move higher."

Indeed, Wall Street already was expected to get a lift after voters in yesterday's elections gave Republicans at least 51 Senate seats. With the GOP's majority in the House, it will be the first time in 50 years that Republicans take control of the White House, Senate and House.

Investors traditionally hail a GOP victory because the party is perceived as favoring tax cuts and a supporter of business.

Stock winners included Lockheed Martin, the largest U.S. defense contractor, which rose $1.30 to $54.95, and Northrop Grumman, a maker of warships, which gained $3.92 to $100.40. Pfizer, the world's largest drugmaker, rose $1.02 to $33.64.

But analysts cautioned the market remains vulnerable to bouts of profit-taking after four weeks of gains. Since hitting a five-year low of 7,286.27 on Oct. 9, the Dow has gained more than 1,300 points, or nearly 20 percent.

Wall Street also was watching to see who might replace Securities and Exchange Commission Chairman Harvey Pitt, who resigned yesterday.

Cisco rose 28 cents to $12.97 in advance of its release of first-quarter earnings after the close of trading today. The maker of computer-networking equipment was expected to report a profit of

13 cents a share, according to Thomson First Call.

Decliners included Amgen, which fell $3.88 to $46.20, after the biotechnology firm postponed its analyst meeting for Nov. 21 by three months, citing in part two lawsuits involving its anemia drug.