Posted by Gulfnews.com

The US Federal Reserve's emergency interest rate cut on Tuesday could be the last and best hope for stockmarket bulls on Wall Street, after the worst start to a year on record.

But the surprise rate cut could also bring an end to the huge rally in US bonds.

After tumbles in stock markets across Asia and Europe on Monday when US markets were closed for a holiday, Wall Street stocks looked headed for a plunge on Tuesday, but the Fed's surprise rate cut staunched the worst of the bleeding and raised hopes that US selling may be overdone.

Before the rate cut announcement US Treasuries prices had soared, sending yields to their lowest in four years as investors dumped riskier assets, before giving back some of the price gains.

"You've met the conditions for a selling climax and now you're getting a reversal. Compared to the damage that we've seen overseas, we're only down a fraction."

Even so, there is still a potential for more downside in stock prices and bond yields that could test investors' faith, analysts said.

"Investors have thrown in the towel and I think that really marks the end of the selling for now. I believe that we're very close to a bounce, but I don't think that necessarily will mark an ultimate low," said Bruce Zaro, chief technical strategist at Delta Global Advisors.

In debt markets, there is a only little more room for bond prices to move higher. Bond prices generally benefit from rate cuts but they often factor in such monetary policy easing well in advance, as has been the case with the run-up in Treasuries prices over the last seven months.

Indicators: Building a fresh base

Analysts who study stock prices and volume statistically said the US stock market appeared to have now seen that cathartic selling that could help it build a base from its "oversold" condition.

The Dow Jones industrial average was down more than 3.5 per cent below the 12,000 level on opening Tuesday, before ending down only 1.02 per cent at 11,975.42.

Similarly, the benchmark S&P500 index fell 3.78 per cent before recovering to end down only 1.1 per cent at 1,310.62.

The Nasdaq slumped 4.40 per cent before bouncing to end down 2.04 per cent at 2,292.27.