Closing Market Report

Star-Bulletin news services

Fed’s reassurance
ignites Wall Street

NEW YORK -- Soothing words from the Federal Reserve sparked a late-day rally on Wall Street yesterday, with stocks surging higher on investors' growing confidence that the economy is on the path to recovery. The Dow Jones industrials shot up 118 points.

The Fed, which left interest rates unchanged and at a 45-year low, reassured the market with a statement that its credit policy was supporting the economic rebound. It also reassured investors worried that deflation might threaten the nation's growth.

"They said that risk is on the downside for deflation and they expect rates to stay low for a while. That is the message for the market," said John P. Waterman, chief investment officer at Rittenhouse Asset Management.

Analysts said the market was also encouraged by a report showing a rise in consumer prices, because that increase points to an improving economy.

"The fact is that the economy is tending to show a pattern of improvement, rather than deterioration," said Kevin Caron, market strategist for Ryan, Beck & Co.

The Dow closed up 118.53, or 1.3 percent, at 9,567.34. The Nasdaq composite index rose 41.55, or 2.3 percent, to 1,887.25. The Standard & Poor's 500 index advanced 14.51, or 1.4 percent, to 1,029.32.

Advancing issues outnumbered decliners 5 to 2 on the New York Stock Exchange. Consolidated volume was moderate at 1.80 billion shares, up from 1.45 billion on Monday.

The Russell 2000 index, the barometer of smaller company stocks, rose 8.02, or 1.6 percent, to 515.66. The NYSE composite index gained 69.74, or 1.2 percent, to 5,800.18. The American Stock Exchange composite index edged up .19, or 0.2 percent, to 983.36.

The two-year Treasury note was unchanged at 1002532, with its yield rising 1 basis point to 1.59 percent. The 10-year note fell 2/32 to 992532, with its yield gaining 1 basis point to 4.28 percent.

The pace of buying accelerated in late afternoon trading, following the Fed's announcement on rates and its assessment of the economy. Just before the Fed's news, the Dow was up about 48 and the Nasdaq was up about 21.

The Fed said it will hold interest rates steady, a position some economists expect it to maintain at its next meeting Oct. 28 and for the remainder of the year.

Yesterday's other economic news -- the Labor Department's Consumer Price Index -- also matched economist's expectations and supported the notion that deflation is not a danger. Consumer prices rose by 0.3 percent in August, the biggest increase in five months, due in part to a spike in gasoline costs, the department said.

The rise in consumer prices has a positive spin to it in that it backs up other data signaling that an economic recovery is under way.

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