With traders expressing continued optimism about the likelihood of further stimulus from the Federal Reserve, stocks moved sharply higher during trading on Tuesday. The strong gains extended the upward move seen over the past two weeks.
The major averages gave back some ground in the latter part of the trading day but still closed firmly in positive territory. The Dow advanced 95.51 points or 0.8 percent to 12,837.33, the Nasdaq jumped 34.43 points or 1.2 percent to 2,929.76 and the S&P 500 climbed 13.20 points or 1 percent to 1,357.98.
The gains lifted the major averages to their best closing levels in over a month, although they remain well off their spring highs.
The rally on Wall Street came amid optimism that the Federal Reserve will announce further measures to stimulate the sluggish economy following the conclusion of its two-day monetary policy meeting on Wednesday.
A recent batch of disappointing U.S. economic data has contributed to the optimism about further stimulus along with continued concerns about the impact of the ongoing financial crisis in Europe.
In recent Congressional testimony Fed Chairman Ben Bernanke said the central bank remains prepared to take action if financial stresses escalate but made no explicit reference to further easing measures.
Many analysts expect the Fed to announce an extension of "Operation Twist," which 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.
Before the start of trading, the Commerce Department released a report showing a decrease in housing starts in the month of May, although the drop came from a notably upwardly revised level in April.
The report showed that housing starts fell 4.8 percent to an annual rate of 708,000 in May from the revised April estimate of 744,000. Economists had expected housing starts to edge up to 720,000 from the 717,000 originally reported for the previous month.
At the same time, building permits, an indicator of future housing activity, jumped 7.9 percent to an annual rate of 780,000 in May from the revised April rate of 723,000. Building permits had been expected to climb to 736,000.
In corporate news, shares of Oracle (ORCL) rose by 3.1 percent after the business software giant released its fourth quarter results ahead of schedule, reporting adjusted earnings and revenues that exceeded analyst estimates.
Oracle also said its board of directors has authorized the repurchase of up to an additional $10 billion worth of common stock under its existing share repurchase program.
Delivery giant FedEx (FDX) also ended the day higher after reporting better than expected fourth quarter adjusted earnings but forecasting first quarter earnings below analyst estimates.
Most of the major sectors moved to the upside over the course of the trading day, reflecting broad based buying interest. Steel stocks posted particularly strong gains, driving the NYSE Arca Steel Index up by 3.7 percent to a one-month closing high.
Airline stocks also showed a substantial upward move, driving the NYSE Arca Airline Index up by 2.4 percent. The index also reached a one-month high amid a standout gain by Brazilian airline Gol (GOL), which jumped 4.1 percent after naming Paulo Sergio Kakinoff as its new CEO.
Significant strength was also visible among software stocks, as reflected by the 2.1 percent gain posted by the Dow Jones Software Index. Along with Oracle, Microsoft (MSFT) also posted a strong gain after unveiling a Windows-based tablet device to rival Apple's (AAPL) iPad.
Banking stocks also moved sharply higher on the day, with the KBW Bank Index surging up by 2 percent to its best closing level in over a month. Chemical, oil service, electronic storage, and networking stocks also posted notable gains.
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Tuesday. While Japan's Nikkei 225 Index ended the day down by 0.8 percent, Singapore's Straits Times Index advanced by 0.6 percent.
Meanwhile, the major European markets all showed strong moves to the upside over the course of the trading day. The German DAX Index surged up by 1.8 percent, while the U.K.'s FTSE 100 Index and the French CAC 40 Index both jumped by 1.7 percent.
In the bond market, treasuries moved moderately lower after ending the previous session roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.6 basis points to 1.62 percent.
Trading on Wednesday is likely to be driven by reaction to the Fed's monetary policy announcement, with the markets likely to see considerable volatility following the release of the statement regardless of whether the central bank reveals any further stimulus.
Following the release of the statement, the Fed's revised economic forecasts may attract some attention along with Bernanke's press conference.
by RTT Staff Writer
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