NEW YORK (AP) - An unusual emergency interest rate cut by the Federal Reserve gave Wall Street a partial rebound yesterday from a precipitious early decline - and perhaps the first steps toward a long-term recovery. The rest of the comeback, for the economy as well as the stock market, may depend on a turnaround in the battered housing market and renewed confidence among US consumers.

The Dow Jones industrial average, down 465 points shortly after trading began, bounced around throughout the session before closing with a milder drop of 128.11, or 1.06 percent, at 11,971.19, according to preliminary calculations.

US stocks began the day following the lead of markets abroad that had plummeted for two straight days, and also extended their own steep losses from last week. Fears of a US recession - one that would spread to other economies - had investors fleeing stocks worldwide.

The Fed, in a step anticipated by many traders, moved before the opening of trading, cutting its benchmark federal funds rate by 0.75 percentage point to 3.50 percent and the discount rate, the interest the Fed charges banks directly, to four percent. What was unusual was the reduction's coming between regularly scheduled meetings of the central bank's policy-making Open Markets Committee; the next gathering is a week away.

Also, the cut was larger than the half-percentage point expected to be announced at the end of that two-day meeting, and the widest cut in the target fed funds rate on records going back to 1990.

The fact stocks did not continue their steep plunge - the Dow fell 277 points last Tuesday and 307 on Thursday - was a positive sign, but economists and analysts said a full recovery was not likely in the near term.

One of the market's greatest concerns is that consumers, who normally account for two-thirds of the economy, are not in a position to spend the country back into solid growth. Even if rates continue to fall, Americans have been showing increasing signs of cutting back rather than borrowing or spending, even during the holiday season.

"People are up to their eyeballs in debt, and they're being asked to borrow more," said Mike Schenk, senior economist for the Credit Union National Association.

"This is a cure for the wrong disease. It makes everybody feel good, but it's not going to have any ongoing benefit," said Daniel Alpert, managing director of Westwood Capital LLC. "We need to get ourselves out of a mountain of debt and overvalued properties."

But interest rate reductions are one strategy the Fed has used in previous crises to help the economy recover. A rate cut tends to spur the economy by making it cheaper for businesses to borrow money. It would also lighten the burden on people with credit card debt and mortgages that have adjustable rates.

Still, its effect on Wall Street was not overwhelmingly positive. The Standard & Poor's 500 index, the broad market measure most closely followed by traders, fell 14.69, or 1.11 percent, to 1,310.50, while the Nasdaq composite index lost 47.75, or 2.04 percent, to 2,292.27.

Stocks have been beaten down for months amid the housing and mortgage crisis that began with a stream of failed home loans to consumers with poor credit. The Dow, for example, is down nearly 10 percent since the beginning of the year - logging its worst first 14 trading days of the year ever. It is more than 15 percent since its record close of 14,16.53 on October 9, and is at its lowest close since October 17, 2006.

Investors are well aware that housing worries remain: Many adjustable-rate mortgages - similar to those that went bad last year - will still be adjusted higher, and home prices are expected to keep falling this year. Financial companies have lost billions due to those mortgages, retail sales are falling and companies in general are not on a spending spree.

Investors, institutional and individual, are also in a defensive mode, one that an interest cut will not immediately change. In the week ended January 15, when many on Wall Street believed a rate cut was in the offing, investors shoveled money into cash reserves at a record pace, according to iMoneyNet. Assets in money market funds ballooned by $15.7 billion to a high of $3.17 trillion.

And investors pulled an estimated $18.2 billion from mutual funds and exchange-traded funds, which group baskets of investments under one security, according to TrimTabs Investment Research. So far this year, investors have shifted $41.4 billion out of these investments.