The dollar fell in value against the currencies of New Zealand's major trading partners, including Australia, the United States and Europe.
Listed export companies saw the benefit as investors poured back into a market that has been staggering along in recent weeks.
Delegats shares rose nearly 8%, F&P Healthcare was up 6.5% and Rakon was up 6.2%.
ABN Amro Craigs broker Chris Timms said the 85-point rise in the NZX-50 lifted the key index 2.67% on reasonable volume of $108 million.
"The biggest issue now is the Reserve Bank cut has affected short-term interest rates.
People who have been sitting with their money on short-term rates would need to start looking for alternative income sources.
"Property is no place to go and they won't do short-term debentures. This could be a catalyst for a reinvestment back into the share market."
Forsyth Barr broker Peter Young said a lot of share prices had lifted off their recent lows.
"I wouldn't go as far to say we're back on our way as there are still problems overseas. But this is the start of something good. It's been a good day and there is some good buying out there."
The rate cut saw swap rates rally with the two-year swap yield falling to 7.41%.
Bank bill futures also joined the rally and the market is now fully pricing in 0.25% rate cuts at each meeting until March 2009.
Bond yields and prices move in opposite directions.
Reserve Bank governor Alan Bollard said economic activity was likely to remain weak over the rest of the year.
The ongoing correction in the housing market, together with the very high oil prices, would limit household spending and constrain the extent of recovery.
High export prices and an an expansionary fiscal policy by the Government were expected to contribute to a gradual pick up in activity through 2009.
New Zealand Manufacturers and Exporters Association chief executive John Walley said that as the cash rate moved down, it was likely domestic interest rates would lag behind.
"But the exchange rate is already falling which will, at long last, start to improve exporter returns on US dollar sales. Unfortunately it will also increase the cost of imported goods."
Exporters were almost seeing a repeat of the conditions in the 1970s and 1980s where cost increases, rather than increasing demand, pushed inflation upwards.
Since then, monetary policy had focused on demand and had seemed to return low inflation, albeit in a period of low global cost pressures.
"Over the past few years monetary policy has painted us all into the corner of falling capacity in the tradeable economy and credit-driven consumer demand.
"The problem for policy makers is that the OCR is having little effect on the domestic economy.
Banks are struggling due to the global credit crunch so they are not likely to drop their rates any time soon," Mr Walley said.
ANZ-National Bank chief economist Cameron Bagrie said there would be detractors saying the Reserve Bank was risking a blow-out in inflation by easing now.
"Certainly, any policy response takes on a degree of risk. We also need to be cognisant of the economic reality of the current situation."
The Reserve Bank was being totally consistent when yesterday's decision was compared with the approach last year.
Last year, the central bank hiked rates even though near-term inflation was heading towards 1.5%, preferring to focus on medium-term pressures.
The same approach was being adopted now.
The cash rate was sufficiently high that a rate cut now was not going to result in the economy reflating.
Yesterday's actions were helping to stabilise a clearly rapidly deteriorating environment, he said.
