NEW YORK, March 18 (UPI) -- U.S. markets posted strong gains Tuesday with investors buoyed by the Federal Reserve's latest cuts in key interest rates.

The Dow Jones industrial average gained 419.27 points to 12,391.52 points, up 3.5 percent. The Standard & Poor's index rose 4.22 percent to 1,330.65 points on a gain of 54.05 points.

The Nasdaq composite index also rose, up 91.25 points to 2,268.26 points, a 4.19 percent advance.

The 10-year U.S. Treasury note dropped 1 12/32 to yield 3.46 percent.

The dollar was mixed. The euro traded at $1.5630 from $1.5747 Monday, while the dollar traded at 99.64 yen from 97.38 yen Monday.

In Tokyo, the Nikkei index also advanced Tuesday, gaining 1.5 percent on a 176.65 point rise to 11,964.16 points.

In London, the FTSE 100 index gained 189.6 points at the close Tuesday, up 3.5 percent to 5604.00 points.

Federal Reserve cuts key rates

WASHINGTON, March 18 (UPI) -- The U.S. Federal Reserve cut the federal funds rate to 2 1/4 percent Tuesday in a bid to bolster confidence on Wall Street.

The action widens the gap between what banks pay for loans when borrowing from each other and what they earn from their customers, helping restore liquidity to troubled financial firms.

"Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened.," the Fed said in a statement.

"Inflation has been elevated, and some indicators of inflation expectations have risen," the statement said.

Eight members of the Federal Open Markets Committee, including Chairman Ben Bernanke, approved the rate cute, the bank said. William Poole of the Federal Reserve Bank of St. Louis was the only committee member opposed to the move.

In a second, related action, the Fed also decreased the discount rate, cutting it to 2 1/2 percent.

British banks hit hard in credit crunch

LONDON, March 18 (UPI) -- Major British banks and top companies lost $102 billion Monday and the British pound declined in value, shaking confidence in the country's economy.

Among the losses, Halifax Bank of Scotland, the country's largest mortgage lender, lost 13 percent of its value, the Daily Telegraph reported Tuesday.

Barclays and the Royal Bank of Scotland each lost 9 percent of their value, as analysts predicted the British economy was in for hard times.

"I have been working in finance in the city (London) and worldwide for 34 years and I have never seen anything like this," said Terry Smith, chief executive of Tullett Prebon.

Prime Minister Gordon Brown said he would support "whatever action is necessary."

On Monday, the Bank of England added $10 billion to the economy, and the FTSE 100 stock index in London responded with a 191-point gain on Tuesday.

In its February monthly meeting the Bank of England kept key lending rates stable at 5.25 percent, balancing their concerns between triggering higher inflation and managing liquidity at the nation's banks.

"Everyone is asking: Who's next? Is there a Bear Stearns (NYSE:BSC) in Europe?" a strategist at BNP Paribas (OTCPK:BNPQF) said.

Suit holds up hotel worker wage hikes

LOS ANGELES, March 18 (UPI) -- A lawsuit filed in Los Angeles has cost hotel workers on Century Boulevard in Los Angeles millions in lost wages, a pro-union group said Tuesday.

A city law requires 13 hotels on Century to pay workers a higher hourly rate than in other city hotels, the Los Angeles Times reported.

Seven of the hotels filed suit to protest the law, costing approximately 2,000 workers $4.7 million in lost income, the Los Angeles Alliance for a New Economy reported.

The law was approved in January 2007 and has cost each worker between $350 and $4,400, the group said.

The suit is scheduled to be reviewed by the California Supreme Court next month. However, if the court refuses to hear the case, the hotels will petition to have the law repealed, the paper said.

"If they decide to start collecting signatures, we want this information out there as part of the debate," alliance spokesman Danny Feingold told the paper.