NEW YORK - A surprised Wall Street pushed stocks higher yesterday after the Federal Reserve's historic decision to further slash interest rates and pledge broad support to revive the troubled economy.

The Dow Jones industrials surged nearly 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it would use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.

Demand for long-term government bonds increased and pushed yields, which move in the opposite direction of prices, to record lows.

The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to boost the economy by further lowering interest rates.

"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust Corp., of Chicago. "It was a reaffirmation of their willingness to be very aggressive."

Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.

The Dow rose 359.61, or 4.20 percent, to 8,924.14. The Standard & Poor's 500 index advanced 44.61, or 5.14 percent, to 913.18, and the Nasdaq composite index rose 81.55, or 5.41 percent, to 1,589.89.

The Russell 2000 index of smaller companies rose 30.28, or 6.69 percent, to 482.85.

The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell 91 cents to settle at $43.60 a barrel on the New York Mercantile Exchange.

The rate decision came on a day when investors received two more pieces of evidence yesterday that the economy was worsening: The Commerce Department reported an 18.9 percent drop in new-home construction in November, while the Labor Department said consumer prices sank 1.7 percent.

Wall Street remained nervous about the growing list of firms and individual investors affected by investment manager Bernard L. Madoff, who is accused of scamming investors.

Madoff, former chairman of the Nasdaq stock market, was arrested Thursday in what the Securities and Exchange Commission is calling one of the biggest Ponzi schemes on record. Investors of all sizes - from major banks to small charities - may record losses that total more than $50 billion. Firms invested in his fund include such major European banks as HSBC Holdings P.L.C., Banco Santander Central Hispano S.A., BNP Paribas, and the Royal Bank of Scotland Group P.L.C. Locally, Banco Santander is buying the remaining shares of Sovereign Bancorp Inc. and Royal Bank is the parent of Citizens Bank.