Dow hits a two-year high as Fed details stimulus

NEW YORK — The Dow Jones industrial average reached its highest level in two years Wednesday after the Federal Reserve announced plans to buy $600 billion in Treasurys to stimulate the economy.

The central bank had hinted for two months that it planned a major bond-buying program in order to encourage borrowing and spending by lowering interest rates. The Fed made more explicit commitments in its announcement than many investors had been expecting, which helped push stock indexes and most Treasury prices higher.

The Dow Jones industrial average gained 26.41, or 0.2 percent, to 11,215.13, its highest close since the peak of the financial crisis in September 2008. Its previous high for 2010 of 11,205 was reached on April 26. The Dow had traded above that level four other times in the past two weeks.

Broader indexes also rose. The Standard and Poor's 500 Index rose 4.39, or 0.4 percent, to 1,197.96, while the Nasdaq composite gained 6.75, or 0.3 percent, to 2,540.27.

The S&P 500 index, the measure most closely watched by professional investors, is still about 20 points, or 1.6 percent, below its high of the year. The technology-focused Nasdaq closed at its highest level for the year for the second straight day.

Stocks initially swung lower after the announcement as traders absorbed the news but then pushed steadily higher in afternoon trading, giving all three indexes gains of about 0.3 percent on the day.

Mid-term election results that delivered a solid majority to the Republicans in the House of Representatives but kept Democratic control of the Senate was in line with what most investors were expecting.

The Fed's announcement was unusually direct for the central bank. Instead of reassessing its bond purchases every month given economic conditions, as many expected, the Fed pledged to buy $75 billion of Treasurys each month through the middle of next year.

"The Fed's move takes a lot of uncertainty out of the air," said Anthony Chan, the chief economist for JP Morgan Chase's private wealth management division. "This puts a floor on the economy's performance and gives them the opportunity to do more if the economy needs it."

The central bank's program may continue to push stock prices higher if it succeeds in reigniting economic expansion. "If it works, what the Fed is trying to do here will boost confidence ... and we could see unemployment start to come down," said Joe Davis, the chief economist at Vanguard.