Stocks snap higher on hopes for new Fed action

PALLAVI GOGOI AP Business Writer Published:

NEW YORK (AP) -- The U.S. economy took center stage on Wall Street Tuesday after investors shifted their focus away from Europe for the first time in days.

Stocks shot higher on hopes that the Federal Reserve will come up with a plan to jumpstart the U.S. economy, which has shown signs of strain in recent weeks with stalling job growth. Banks and materials stocks led the way higher.

The Dow Jones industrial average was up 140 points at 12,882 at mid-afternoon Tuesday. The Dow was headed for its third triple-digit gain in the last four days.

Microsoft was one of the biggest gainers in the Dow. The stock jumped 4 percent after the company announced a new tablet computer called Surface to compete with the immensely popular iPad from Apple. Microsoft was up $1.14 at $30.98.

The other top-performing stocks in the Dow were financial companies: Bank of America rose 5 percent, JPMorgan Chase was up 2.7 percent and American Express gained 2 percent.

Traders are latching on to recent signals from the Federal Reserve that the central bank may reveal plans to stimulate the economy at the end of its two-day meeting, which started Tuesday.

"A good portion of today's strong market action is from a hope factor that we're going to get more easing from the Fed," said Peter Cardillo, chief market economist at Rockwell Global Capital.

Economists say that even if the Fed does not act after its meeting, it will send a clear message that it is standing by to do so if needed.

There were also signs that the housing market is healing. American builders broke new ground on more single-family homes in May and requested more permits to build homes and apartments than they have in the past three and a half years.

The Commerce Department also said April was much better for housing starts than first thought. The government revised up the figures to 744,000, the fastest building pace since October 2008.

Material stocks rose on the prospect of demand from home construction. US Steel rose 6 percent and Freeport-McMoran Copper rose 3 percent.

In other trading, the Standard & Poor's 500 index rose 19 points to 1,363. All the 10 industry groups in the S&P rose. The technology-heavy Nasdaq composite index rose 45 points to 2,940.

European markets rose after borrowing costs eased for Spain and Italy. Spain's benchmark 10-year bond yield fell below the key 7 percent level to 6.99 percent and Italy's fell 0.04 percentage point to 5.79 percent.

Spain raised $4.28 billion in an auction of 12- and 18-month bills, more than analysts had expected. However Spain's cost to raise the money skyrocketed. The Spanish government had to pay an interest rate of 5.07 percent for the 12-month bills, up sharply from 2.98 percent at the last such auction on May 14.

Still, investors were heartened to see that people were willing to lend Spain money.

"Even though it cost Spain dearly and yields rose to a record, the fact is that it was not shut out of the markets," said Cardillo.

Spain's IBEX 35 index rose 2.7 percent, while Germany's DAX added 1.8 percent and France's CAC-40 rose 1.7 percent.

Among other stocks making big moves:

-- Oracle soared $1.05, or about 4 percent, to $28.18 after the software maker surprised investors with the early release of its fourth-quarter earnings. The results beat Wall Street's forecasts, and the company said new software licenses increased sharply.

-- J.C. Penney plunged $2.45, or 10 percent, to $21.87 after the chain store announced that Michael Francis, the former Target executive brought in to help redefine the company's brand, was leaving the company. It was the biggest loss of any stock in the S&P 500.

-- Barnes & Noble fell 64 cents, or over 4 percent, to $14.60 after the book store chain reported a wider loss than Wall Street was expecting. It also reported that its Nook e-reader sales fell 11 percent in the quarter.

-- Walgreen plunged $1.74, or 5.54 percent, to $30.20 after the company said it is buying a $6.7 billion stake in European health and beauty retailer Alliance Boots. Investors worried about a deal that would expose the biggest U.S. drugstore chain to a continent beset by worries of a recession.

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