Stocks finish moderately higher on Fed minutes
Stocks finished with moderate advances after stumbling in the early going because of data that gave mixed readings on the service sector, factory orders and pending home sales. While investors expected the data would show further deterioration, they were hoping the pace of the declines would slow. The market is eager for signs that the U.S. recession will end this year.
Stocks recovered in midafternoon trading after the Federal Reserve released the minutes from its December meeting, providing insight into the central bank's historic decision to ratchet down its key interest rate to near zero.
Federal Reserve officials feared the economy would be stuck in a painful rut for some time. Fed Chairman Ben Bernanke and his colleagues slashed the central bank's target lending rate to help spur the economy.
The Fed, which this week began buying mortgage-backed securities, also said at the time it was considering acquiring other types of securities, such as Treasurys.
"I think this statement clearly indicates they are going to continue to try to get rates lower and move people into riskier assets," said Peter Cardillo, chief market economist at Avalon Partners. "The minutes point out the fact that they are using every tool available and expanding their balance sheet."
Earlier Tuesday, the National Association of Realtors said that pending home sales fell to the lowest level on record in November. The trade group said its seasonally adjusted index of pending sales for existing homes fell 4 percent to 82.3 from a downwardly revised October reading of 85.7 in October. That's worse than the reading of 88 that economists expected, according to Thomson Reuters.
Meanwhile, the Commerce Department said factory orders declined by 4.6 percent in November, nearly double the 2.5 percent dip economists expected. The drop marks a record fourth straight month of declines.
One bright spot among the day's reports: the Institute for Supply Management said the U.S. services sector contracted at a slower pace last month. The trade group of purchasing executives said its services sector index rose to 40.6 in December from 37.3 in November. Wall Street economists had expected the index to slip slightly to 37.
The index continues to signal the sector is contracting, however. A reading below 50 signals contraction, while a reading above 50 indicates growth.
According to preliminary calculations, the Dow Jones industrial average rose 62.21, or 0.69 percent, to 9,015.10.
Broader stock indicators showed steeper advances. The Standard & Poor's 500 index rose 7.25, or 0.78 percent, to 934.70, while the Nasdaq composite index advanced 24.35, or 1.50 percent, to 1,652.38.
The Russell 2000 index of smaller companies rose 94.16, or 1.01 percent, to 514.71.
On the Net:
New York Stock Exchange: www.nyse.com
Nasdaq Stock Market: www.nasdaq.com
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