After showing a lack of direction throughout morning trading on Thursday, stocks moved substantially higher in the afternoon amid a positive reaction to the Federal Reserve's highly anticipated monetary policy announcement.
The major averages moved roughly sideways going into the close, ending the day sharply higher. The Dow jumped 206.51 points or 1.6 percent to 13,539.86, the Nasdaq surged up 41.52 points or 1.3 percent to 3,155.83 and the S&P 500 soared 23.43 points or 1.6 percent to 1,459.99.
With the strong gains on the day, the Dow and the S&P 500 reached their best closing levels in well over four years, while the Nasdaq reached a nearly twelve-year closing high.
The rally on Wall Street came after the Fed announced a plan to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
The Fed also announced the continuation of its "Operation Twist" program, saying that the actions taken together will increase the central bank's holdings of longer-term securities by about $85 billion each month through the end of the year.
Looking ahead, the Fed said it would continue its purchases of mortgage-backed securities until the outlook for the labor market improves substantially.
The central bank also left interest rates at near-zero levels and said exceptionally low rates are likely to be warranted at least through mid-2015.
Peter Boockvar, managing director at Miller Tabak, said, "Bottom line, Bernanke gave us what many should have expected after his Jackson Hole speech where he defended previous QE and gave his 'grave' concerns with the labor market comment."
With the focus on the Fed, traders largely shrugged off a report from the Labor Department showing a bigger than expected increase in weekly jobless claims.
Labor Department officials noted that the increase in jobless claims was partly due to the impact of Hurricane Isaac, as major storms can often delay unemployment filings.
A separate report from the Labor Department showed that a substantial rebound in energy prices contributed to a bigger than expected increase in producer prices in the month of August.
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. While Japan's Nikkei 225 Index rose by 0.4 percent, Hong Kong's Hang Seng Index edged down by 0.1 percent.
The major European markets also ended the day mixed. The U.K.'s FTSE 100 Index rose by 0.7 percent, while the German DAX Index fell by 0.5 percent and the French CAC 40 Index tumbled by 1.2 percent.
In the bond market, treasuries saw considerable volatility following the release of the Fed statement before ending the day mixed. The yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 1.756 percent.
Most of the major sectors moved notably higher following the release of the Fed statement, reflecting broad based buying interest.
Gold stocks posted particularly strong gains, benefiting from a sharp increase by the price of the precious metal. With gold for December delivery jumping $38.40 to $1,772.10 an ounce, the NYSE Arca Gold Bugs Index surged up by 4.9 percent.
Considerable strength also emerged among banking stocks, as reflected by the 2.8 percent gain posted by the KBW Bank Index. With the gain, the index reached its best closing level in well over a year.
Steel stocks also showed a strong move to the upside, driving the NYSE Arca Steel Index up by 3.7 percent to a four-month closing high. Oil, chemical, telecom, and housing stocks also posted notable gains on the day.
Trading on Friday could be impacted by the release of a slew of U.S. economic data, including reports on retail sales, consumer prices, and industrial production.
by RTT Staff Writer
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