Stocks resume climb after Fed holds steady
NEW YORK » Wall Street wobbled, then regained its stride yesterday after the Federal Reserve told investors what they expected to hear: that inflation is still too high for comfort, but the central bank is holding interest rates steady.
The Dow Jones industrials rose to another record close.
Though some investors were hoping the Fed would raise the possibility of a future rate cut, they weren't surprised by the committee's stance. Moreover, they were relieved to hear the Fed is not more inclined than it has been to raise rates, a move that would make access to capital more expensive and potentially hurt the stock market.
"The Fed said we're not going anywhere," Larry Smith, chief investment officer at Third Wave Global Investors. "They're not saying inflation is going to the moon, they're not saying it's a huge problem right now, but they're concerned that inflation won't come down to their comfort range."
Stocks drew support yesterday from more takeover news, particularly speculation about a possible bid by mining company BHP Billiton Ltd. for rival Rio Tinto Group. Investors were also pleased about a government report that showed that after three months of declines, the nation's gasoline inventories rose last week. If they keep increasing, fuel costs for U.S. drivers are likely to ease.
According to preliminary calculations, the Dow Jones industrial average rose 53.80, or 0.40 percent, to 13,362.87, after reaching a new trading high of 13,369.29. It was the blue chip index's 21st record close since the beginning of the year.
The Standard & Poor's 500 index advanced 4.86, or 0.32 percent, to 1,512.58 -- a new six-and-a-half-year high. The index is near its closing record of 1,527.46, reached March 24, 2000.
The Nasdaq composite index rose 4.59, or 0.18 percent, to 2,576.34.
The Russell 2000 index of smaller companies gained 3.87, or 0.47 percent, to 834.77.
Advancing issues outnumbered decliners by about 7 to 4 on the New York Stock Exchange, where volume came to 1.56 billion shares, up from 1.50 billion Tuesday.
Bonds have struggled in recent months, and the yield on the 10-year Treasury note remains lower than that of shorter-term issues -- indicating that traders are betting on even slower economic growth going forward.
Bond prices dropped after the Fed statement, pushing the 10-year yield up to 4.67 percent from 4.64 percent late Tuesday, and the 2-year yield up to 4.73 percent.
Crude oil prices dropped 61 cents to $67.82 a barrel on the New York Mercantile Exchange, after the U.S. government said the nation's gasoline stockpiles increased last week.
The dollar was mixed against other major currencies, while gold prices fell.
Rio Tinto's stock jumped $31.62, or 12 percent, to $296.27, on rumors that BHP Billiton might bid for the company. BHP rose $2.51, or 4.9 percent, to $53.41.
But the technology-laden Nasdaq was weaker after Cisco Systems Inc. reported an abrupt slowdown in orders from U.S. business in its quarterly financial results.
The computer network equipment maker's stock fell $1.85, or 6.5 percent, to $26.51, even though its fiscal third-quarter profit soared 34 percent.