Dow gains 217 on Fed stance

NEW YORK » A relief rally carried Wall Street sharply higher yesterday after the Federal Reserve appeared to soften its stance on future interest rate hikes, saying it would consider both the economy's health and inflation as it formulates its policy. The Dow Jones industrial average rose more than 215 points, its biggest one-day point gain in more than three years.

While investors had been expecting the quarter-point increase in short-term lending rates, they were reassured by the central bank's accompanying statement, in which the Fed noted economic growth has moderated but that "some inflation risks remain." The Fed has tended to focus on inflation in past statements, but this time said it would look at the economy's growth rate as well as the impact of inflation in deciding whether to raise rates in the future.

That language consoled a market worried that Chairman Ben Bernanke might raise rates so high in his fight against inflation that the economy would suffer. Many traders expect another quarter-point raise when the Fed's Open Market Committee meets in August.

The Dow surged 217.24, or 1.98 percent, to 11,190.80, its biggest single-day jump since March 21, 2003, when it added 235.37 points. The Dow was up about 80 points before the Fed's announcement.

Broader stock indicators also saw their best sessions in years. The Standard & Poor's 500 index climbed 26.87, or 2.16 percent, to 1,272.87, its largest gain since rising 29.52 on March 17, 2003; the Nasdaq composite index jumped 62.54, or 2.96 percent, to 2,174.38, behind a 73.13-point advance on July 27, 2002.

Advancing issues topped decliners by more than 5 to 1 on the New York Stock Exchange.

Stocks have endured weeks of wildly erratic trading while the interest rate outlook remained cloudy, particularly after Bernanke earlier this month acknowledged that high energy prices could propel inflation. Investors, however, seemed to grow settled with the fact that the Fed would boost rates yesterday and bid stocks higher ahead of the policy decision.

The central bank previously cautioned that further tightening could be required to contain inflation; in its latest opinion, the Fed simply said "any additional (policy) firming that may be needed" will depend on economic data.

But Jack Ablin, chief investment officer at Harris Private Bank, said the statement was inconsistent with the tough talk on inflation used by a number of Fed officials in recent speeches. Although investors may be relieved that the Fed has "taken the teeth out of the statement," the risk of stagflation is still there, he said.