Stocks rebound after Fed keeps rate steady
NEW YORK » Wall Street overcame disappointment in the Federal Reserve's failure to move toward an easing of interest rates yesterday, and stocks made a late-day surge as the decision was seen as a sign the economy wasn't threatened by turmoil in the credit markets.
Investors were at first deeply disappointed that policymakers, who kept benchmark rates on hold at 5.25 percent, did not provide any hints about a possible cut. But, after digesting the policy statement, they quickly gained solace the economy is likely to withstand troubles in the mortgage industry.
"I think what the Fed is trying to tell us is the economy is still in reasonably good shape, they're still concerned about inflation and they welcome the repricing of risk as long as it does not result in the markets seizing up from a liquidly standpoint," said Robert Auwaerter, head of fixed income portfolio management at Vanguard Group.
The Dow gained 35.52, or 0.26 percent, to 13,504.30. The blue chip index had risen as much as 102 points after the decision; it is the first time since July 30 that it hasn't closed with a triple-digit gain or loss.
The Standard & Poor's 500 index rose 9.04, or 0.62 percent, to 1,476.71, while the Nasdaq composite index rose 14.27, or 0.56 percent, to 2,561.60. The Russell 2000 index of smaller companies fell 7.22, or 0.94 percent, to 773.61.
Treasury bonds fell as investors moved back into stocks, with the yield on the 10-year note falling to 4.77 percent from late Monday's 4.74 percent. Investors had been moving into safer investments, like Treasuries, to avoid volatility in major market indexes.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude oil for September delivery rose 36 cents to settle at $72.42 a barrel on the New York Mercantile Exchange. A week ago, crude closed at a record $78.21 a barrel.
Advancing issues outpaced decliners by a 3 to 2 basis on the New York Stock Exchange, where volume came to 2.14 billion shares.
Wall Street also was pleased by a U.S. Labor Department report that indicated productivity of U.S. workers increased last quarter as the economy rebounded, and labor costs began to retreat. Productivity more than doubled from the first quarter.
Labor costs rose during the period at a 2.1 percent pace, and surpassed Wall Street projections. It was the second-straight quarter in which wage pressures have cooled, which could help assuage some of the Fed's concerns about inflation.
In corporate news, Marsh & McLennan Cos. fell $1.54, or 5.6 percent, to $26.11. The largest U.S. insurance brokerage turned in a 3 percent increase in its second-quarter profits amid growth in its risk and insurance business and consulting operations. The company also approved a $1.5 billion share-repurchase plan.
Duke Energy Corp. rose 96 cents, or 5.4 percent, to $18.86. It reported second-quarter profit fell $1.27 percent after it spun off its natural gas business at the beginning of the year.
Tyco International Ltd. shed 56 cents to $47.44 after it fell to a fiscal third-quarter loss due to hefty charges primarily related to a legal settlement.