Dow jumps 116 after Fed sees growth

Stocks shot higher Wednesday, sending the Dow Jones industrials up by triple digits after the Federal Reserve answered two of Wall Street's major concerns, indicating that the economy remains healthy and that inflation pressures are easing.

In midafternoon trading, the Dow was up 116.08, or 0.93 percent, at 12,639.39.

Broader stock indicators also spurted higher. The Standard & Poor's 500 index was up 9.58, or 0.67 percent, at 1,438.40 and the Nasdaq composite index was up 13.47, or 0.55 percent, at 2,462.11.

The Fed news pushed the Russell 2000 index of smaller companies above the 800 mark; it was recently up 2.29, or 0.29 percent, at 800.26.

The Fed, which issued its economic assessment as it decided to leave short-term interest rates unchanged at 5.25 percent, said recent indicators "suggested somewhat firmer economic growth" and tentative signs of stabilization in the housing market. Investors also appeared pleased by the central bank's comments that readings on core inflation have "improved modestly" in recent months.

Wall Street had expected the Fed would leave short-term interest rates unchanged for the fifth straight meeting after a string of 17 straight increases that began in 2004. But investors had been uneasy about the central bank's economic assessment statement and whether it would indicate that policy makers are considering raising interest rates in the near future because the economy and/or inflation has been growing too fast.

"They coupled a firmer economic growth scenario with the expectation of moderate growth and they expect the inflation outlook to be improving," said John Miller, head of fund management at Nuveen Investments said of the Fed's Open Market Committee. "I don't think it makes it any more likely that they would feel compelled to raise rates."

Bond prices also rose following the Fed's statement, with the yield on the benchmark 10-year Treasury note falling to 4.84 percent from 4.88 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude rose $1.28 to $58.25 per barrel on the New York Mercantile Exchange.

Other economic data had cheered investors Wednesday. The economy gave off fresh signs it could sidestep a sharp slowdown. The Commerce Department found the economy grew at 3.5 percent annual rate in the fourth quarter as consumers increased spending despite a pullback in the housing market. Wall Street had been expecting an increase of 3 percent.

Among other economic data helping move markets was a Commerce Department report that found spending in December on construction projects fell 0.4 percent after rising 0.01 percent in November.

A weaker report came from the National Association of Purchasing Management-Chicago index of business conditions in the Midwest; it fell to 48.8 in January from 51.6 in December. A reading below 50 generally signals a pullback in the region's manufacturing, and this was the first time the reading had fallen below 50 since April 2003. The Chicago number is often viewed as an indicator of how the nation's overall manufacturing sector might be holding up. That report is due Thursday.

"The GDP number was a very good for both the stock and the bond markets because it showed better growth and less inflation," said Stuart G. Hoffman, chief economist for PNC Financial Services Group in Pittsburgh.

Hoffman said the Wednesday's data represented a dichotomy for the economy. "Manufacturing activity is still pretty weak, particularly for autos, whereas the service economy is still quite strong. The markets were whipsawed a little bit. First they see a stronger GDP number and then they get evidence that manufacturing is weaker."

In other economic news, the cost of hiring and retaining workers moderated in the fourth quarter, possibly easing some concern about wage inflation. Wages and benefits rose 0.8 percent in the fourth quarter, down from a 1 percent increase in the third quarter, the Labor Department reported.

"The stock and bond markets respond positively to low inflation and low or stable interest rates. Good news on both is sort of an elixir for both the stock and bond markets," Hoffman said.

In corporate news, Boeing rose $3.73, or 4.3 percent, to $89.73, giving a lift to the Dow industrials. The aerospace company's fourth-quarter profit more than doubled amid broad strength in its commercial airplane and defense system businesses. Revenue climbed 26 percent to $17.5 billion, coming in well ahead of Wall Street's forecast.

SanDisk Corp., which makes flash memory products, fell $3.30 , or 7.7 percent, to $39.53 after it posted a fourth-quarter loss amid big charges related to its acquisition of Israeli flash memory maker M-Systems.

Time Warner Inc. slipped 23 cents to $21.81. The company's fourth-quarter profit jumped 34 percent, aided by the sale of Internet access businesses in Europe and an agreement that brought new subscribers to its cable TV unit.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.15 billion shares.

Overseas, Japan's Nikkei stock average closed down 0.61 percent. Britain's FTSE 100 closed down 0.62 percent, Germany's DAX index finished up 0.01 percent, and France's CAC-40 was down 0.66 percent.

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