NEW YORK (CNN/Money) - The trading session of Jan. 3, 2001 began like any other. Following a year of declines, the U.S. stock market was once again headed lower.

The Dow Jones industrial average by mid-morning was down as much as 191.43 points while the Nasdaq composite index had suffered a 40.15 point loss.

But all that changed just after 1 p.m. on news that the Federal Reserve, in between regularly scheduled meetings, cut interest rates for the first time in more than two years.

Three hours later, the Nasdaq was sporting its best one-day gain on record, 14.17 percent -- a record that still stands. The Dow rallied 2.8 percent and the Standard & Poor's 500 gained 5 percent.

Fueled by hopes that cheaper borrowing costs would prevent a profit-sapping slowdown, the rally two years ago Friday turned out to be nothing but a head fake. Twenty-four months later, the Nasdaq jolt harkens back to a time when the central bank could move markets.

"The Fed used to have ammunition," said Robert Green, investment analyst with Briefing.com.

Over the next two years, the Fed cut interest rates 11 more times, most recently in November, taking the overnight intra-bank lending rate to a four-decade low. Yet stocks in 2002 wrapped up a third straight year of losses for the first time since 1941.

The surprise rate cut propelled the Nasdaq, which had just wrapped up its worst year on record, to 2,616.68 on Jan. 3, 2001. It has fallen 48 percent since.

Looking back, the stock market's problems in early 2001 appear benign compared with what transpired.

"It was a diferrent world," Briefing.com's Green said.

Companies two years ago had begun to warn of slowing profits, but in nothing near the magnitude of what eventually came.

A contested 2000 presidential election, ultimately decided in December, was one of the market's biggest question marks. Bigger worries about war, terrorism and corporate fraud would follow.

In early 2001, it would be a year before Enron, the nation's No. 7 company by sales, would go down in bankruptcy, and about 18 months before WorldCom would say it had overstated cash flow by $3.8 billion.

Yet two years later, the starkest difference may lie in investors' perceptions of the power of borrowing costs.

By cheapening the cost of money, the Federal Reserve successfully set off a wave of mortgage refinancings that kept consumer spending aloft though a prolonged slump in business spending.

But those who two years ago bet that a half-percentage point cut in interest rates would restore corporate profits to late 90s levels have endured an expensive blow.