The central bank cut its key lending rate by 150 basis points to 9.50 percent, larger than the 100 basis point reduction markets were anticipating, to boost lending.

"Lower interest rates will mean more money in investors hand and this is good for stocks," said Rufus Mwanyasi, an analyst at Tsavo Securities.

The benchmark NSE-20 Share Index finished the day up 0.7 percent at 4,349.87 points, a level it neared on Feb 9, 2011 when it closed at 4,361.82 points.

KenGen, the country's main power producer, jumped 6.9 percent to 10.10 shillings after hitting a 14-month high of 10.35 shillings, last touched on Nov. 11, 2011.

Nairobi-based Genghis Capital set a target price of 20.90 shillings for KenGen, saying the firm's prospects were good because of growing demand for electricity amid increased urbanisation and economic growth in the east African country.

In foreign exchange, the shilling ended steady at 86.65/75 to the dollar, barely changed from Thursday's closing level of 86.60/80.

Traders said the shilling could, however, weaken in coming sessions if commercial lenders responded to the lower base rates with rate cuts of their own.

"We expect a bit of pressure on the shilling if banks' lending rates come down too," said Dickson Magecha, a trader at Standard Chartered Bank.

Commercial banks have kept their lending rates at about 20 percent even though the base rate has been cut three times - and by 850 basis points in all - since the central bank embarked on an easing cycle in July.

The central bank has a recent track record of countering sudden dips in the local currency though market operations and interventions.

The central bank has frequently mopped up excess liquidity from the market and sold dollars to banks directly in two consecutive trading sessions earlier this year after the shilling slid to its seven-month low.

In the debt market, government and corporate bonds worth 811 million shillings ($9.4 million) were traded, down from 1.85 billion shillings traded on Thursday.