The Dow shot up 400 points today, becoming the biggest one day gain since 2002.

The Fed acted today in a creative, coordinated effort aimed at thawing the ongoing credit freeze that ails the economy — a move that was greeted with a great amount of enthusiasm on Wall Street. The market closed with its best single-day point gain since Oct. 2002, as the financials led a huge 415-point surge on the Dow.

Some more information on the source of the surge:

Even before the Federal Reserve’s new plan to pump $200 billion into the financial markets was revealed this morning, the market appeared poised for a bounce back. Few could have anticipated the move would have been this big, however. The bears have dominated the tug-of-war in recent days, as the Dow had lost more than 900 points in an eight-day span…

The news that ignited today’s big rally came from the Fed, which announced a new program called the Term Securities Lending Facility. The plan is to lend up to $200 billion to banks for a term of up to 28 days instead of the typical overnight loan. These short-term loans will allow big investment firms to pledge other securities — including residential-mortgage-backed securities. “The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally,” the Fed said in a statement.

“The fact that you are able to put up mortgage-backed securities is the key. They are broadening the scope of what you are able to put up as collateral,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald, who likened it to the items consumers can use as leverage. “It’s like now they are saying they will take your car, boat and lawnmower for collateral so you can take out more money.”

Update: CNN:

Stocks rallied Tuesday as investors welcomed news that the Federal Reserve will lend up to $200 billion to banks and lenders as a means of loosening up tight credit markets.

According to early tallies, the Dow Jones industrial average (INDU) jumped 416 points, its fourth-biggest one-day point gain ever and the biggest one-day point gain since July 2002. In percentage terms, the gain of 3.55% was the best since March 2003…

The Fed will make up to $200 billion available to a group of 20 big investment firms for a term of 28 days, rather than overnight. The program is being coordinated with central banks worldwide. (Full story)

While the announcement was a big positive psychologically, it also coincided with a market that was ready to rally after having slumped over the last few sessions.