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Sept. 13, 2012, 4:55 p.m. EDT

Stocks rally as Fed plans new round of stimulus

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By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) — U.S. stocks leapt Thursday, lifting the S&P 500 to its highest finish since 2007, after the Federal Reserve opted for a third round of quantitative easing to boost economic growth.

“They came in with the big bazooka,” said Nick Raich, director of research at Key Private Bank in Cleveland.

The central bank said it would purchase $40 billion of mortgage-backed securities every month until the labor market improves. The Federal Open Market Committee also said it would likely keep the federal funds rate near zero through at least the middle of 2015.

“Bank of America /zigman2/quotes/200894270/composite BAC -1.29%   and Wells Fargo /zigman2/quotes/203790192/composite WFC -1.98%   should be beneficiaries of this,” said Raich of the lenders and Thursday’s top two risers on the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.10%  , which rose more than 239 points before ending at 13,539.86, up 206.51 points, or 1.6%. That was the index’s highest close since Dec. 26, 2007.

The S&P 500 Index /zigman2/quotes/210599714/realtime SPX -0.12%  gained 23.43 points, or 1.6%, to 1,459.99, with financials pacing gains that included all 10 of the index’s major sectors.

“The equity market sees QE3 as a positive thing and bids are being raised in the areas that are most likely to benefit like construction, housing and consumer staples,” wrote Kevin Giddis, a fixed-income analyst at Morgan Keegan & Co., in emailed research.

The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.18%  added 41.52 points, or 1.3%, to 3,155.83, with iPhone maker Apple Inc. /zigman2/quotes/202934861/composite AAPL -0.34%   closing at a record high of $682.98 a share. Read more on tech stocks.

For every stock that fell four gained on the New York Stock Exchange, where 802 million shares traded. Composite volume of 4.5 billion was the highest in more than three months.

With the Fed announcing further stimulus and protests in the Middle East and Africa sparking concern of supply disruption, oil futures   rose $1.30, or 1.3%, to end at $98.31 a barrel, a four-month high, on the New York Mercantile Exchange. Read more on oil futures.

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Markets react to Fed

WSJ's Paul Vigna joins Simon to review market reaction to the Fed's revised economic outlook and its decision to initiate a new round of bond buying. Getty Images.

The dollar /zigman2/quotes/210598269/delayed DXY -0.36%   fell against global currencies including the euro /zigman2/quotes/210561242/realtime/sampled EURUSD +0.3604%  .

“Bernanke is still concerned about deflationary forces out of Europe. And as the dollar gets weaker and the euro gets stronger, guess who gets stronger in the global marketplace? U.S. goods are now cheaper to folks in Asia,” said Raich at Key Private Bank.

Gold futures /zigman2/quotes/210039517/delayed GCZ22 +0.64%  climbed 2.2% to end at $1,772.10 an ounce. Read more on bold futures.

Treasury prices were mixed, with the yield on the 10-year note  falling to 1.724%.Read more on bonds.

“Short rates were not expected to move, and they haven’t,” said Giddis at Morgan Keegan & Co.

Market expectations for a third round of bond buying were raised after Federal Reserve Chairman Ben Bernanke last month called the weak labor market a grave concern.

“It’s an indication of the Fed being very involved, and the goal is to get more jobs,” said Jeff Savage, regional chief investment officer at Wells Fargo Private Bank.

On Thursday, figures from the Labor Department had jobless claims rising by 15,000 last week to 382,000, with part of the rise attributed to Tropical Storm Isaac. Read more about jobless claims.

“The downside comes later, in the form of inflationary pressures and getting out of this at some point in time. The key focus is commodities, which usually respond to QE with price increases,” Savage said.

A separate government report had wholesale prices rising 1.7% in August, illustrating the rise in energy costs. Read more about producer prices.

$ 36.08
-0.47 -1.29%
Volume: 42.30M
Dec. 2, 2022 4:00p
P/E Ratio
Dividend Yield
Market Cap
$289.45 billion
Rev. per Employee
$ 45.94
-0.93 -1.98%
Volume: 29.82M
Dec. 2, 2022 4:03p
P/E Ratio
Dividend Yield
Market Cap
$175.05 billion
Rev. per Employee
US : Dow Jones Global
+34.87 +0.10%
Volume: 0.00
Dec. 2, 2022 5:10p
-4.87 -0.12%
Volume: 0.00
Dec. 2, 2022 5:10p
US : Nasdaq
-20.95 -0.18%
Volume: 4.59B
Dec. 2, 2022 5:16p
US : U.S.: Nasdaq
$ 147.81
-0.50 -0.34%
Volume: 65.45M
Dec. 2, 2022 4:00p
P/E Ratio
Dividend Yield
Market Cap
$2351.38 billion
Rev. per Employee
US : U.S.: ICE Futures U.S.
-0.38 -0.36%
Volume: 0.00
Dec. 4, 2022 11:38p
US : Tullett Prebon
+0.0038 +0.3604%
Volume: 0.0000
Dec. 4, 2022 11:48p
US : U.S.: Nymex
$ 1,807.40
+11.50 +0.64%
Volume: 14.00
Dec. 4, 2022 11:28p

Kate Gibson is a reporter for MarketWatch, based in New York.

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