With traders expressing optimism about further stimulus from the world's central banks, stocks moved sharply higher during trading on Wednesday. The markets extended the upward move seen in the previous session, recovering further from the sell-off seen in recent weeks.
The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow jumped 286.84 points or 2.4 percent to 12,414.79, the Nasdaq surged up 66.61 points or 2.4 percent to 2,844.72 and the S&P 500 soared 29.63 points or 2.3 percent to 1,315.13.
Much of the rally on Wall Street stemmed from the optimism about further stimulus following the Reserve Bank of Australia's interest rate cut on Tuesday.
The optimism came even as the European Central Bank announced its widely expected decision to leave interest rates unchanged following its monetary policy meeting.
Traders were also initially disappointed by ECB President Mario Draghi's remarks at a subsequent press conference, as they did not seem to indicate that the ECB was planning on providing further stimulus.
However, Draghi later told reporters that the central bank stands "ready to act" if the economic situation continues to worsen.
Positive sentiment was also generated by comments from Atlanta Federal Reserve President Dennis Lockhart, who said that the option of extending "Operation Twist" is still on the table.
Operation Twist involves replacing short-term securities in the Fed's bond portfolio with longer-term securities in an effort to push already low long-term interest rates even lower.
San Francisco Fed President John Williams also spoke late in the trading day, calling it crucial that the central bank maintains in highly stimulatory monetary policy stance.
"As part of this, we've stated our intention to keep our benchmark short-term interest rate at exceptionally low levels at least through late 2014," Williams said. "We must also stand ready to do even more if needed to best achieve our statutory goals of maximum employment and price stability."
Stocks saw continued strength following the release of the Fed's Beige Book report, which said overall economic activity expanded at a moderate pace during the reporting period from early April to late May.
While the Beige Book also said the economic outlooks remain positive, the Fed noted that contacts were slightly more guarded in their optimism.
Most of the major sectors showed strong moves to the upside on the day, reflecting broad based buying interest on Wall Street.
Electronic storage stocks posted particularly strong gains, driving the NYSE Arca Disk Drive Index up by 4.1 percent. Standout gains by Imation (IMN) and STEC (STEC) helped to lift the index further off last Friday's eight-month closing low.
Substantial strength also emerged among brokerage stocks, as reflected by the 3.5 percent gain posted by the NYSE Arca Broker/Dealer Index. Morgan Stanley (MS) helped to lead the sector higher, surging up by 8.4 percent.
Networking stocks also moved sharply higher on the day, resulting in a 3.7 percent advance by the NYSE Arca Networking Index. Housing, semiconductor, oil, and steel stocks also posted significant gains.
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday, adding to the gains posted in the previous session. Japan's Nikkei 225 Index surged up by 1.8 percent, while Hong Kong's Hang Seng Index jumped 1.4 percent.
The major European markets also moved sharply higher over the course of the trading day. While the German DAX Index advanced by 2.1 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index both soared 2.4 percent.
In the bond market, treasuries moved sharply lower amid the rally by stocks, extending the pullback seen in the two previous sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.5 basis points to 1.651 percent.
All eyes are likely to be on Federal Reserve Chairman Ben Bernanke on Thursday, with trading likely to be driven by reaction to the Fed Chief's testimony before the Joint Economic Committee in Washington.
Bernanke is unlikely to tip his hand ahead of the Fed's monetary policy meeting later this month, but his testimony is still likely to overshadow the Labor Department's weekly jobless claims report.
by RTT Staff Writer
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