Stocks rise, bonds fall as Wall Street extends rally
Stocks rose moderately and bonds fell today as Wall Street extended its rally a day after a half-point rate cut from the Federal Reserve. A mild reading on consumer prices added to the market's momentum.
The market soared Tuesday after the Fed slashed the target federal funds rate to 4.75 percent from 5.25 percent because of signs that credit market problems could hurt the overall economy. The Dow Jones industrials, climbing nearly 336 points, had their biggest one-day point gain in nearly five years.
On Wednesday, economic data came in that seemed to support the idea that the Fed's rate decrease was a good idea. The readings suggested that amid August's tight credit climate and extreme stock volatility, the housing market weakened while inflation stayed under control.
In the first hour of trading, the Dow rose 60.15, or 0.44 percent, to 13,799.54.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 10.29, or 0.68 percent, 1,530.07, and the Nasdaq composite index rose 16.67, or 0.63 percent, to 2,668.33.
Bonds fell sharply as investors transferred more money from fixed income to stocks. The yield on the benchmark 10-year Treasury note rising to 4.54 percent from 4.47 percent late Tuesday.
The Labor Department's August consumer price index slipped 0.1 percent, as expected, while the core CPI excluding food and energy prices rose an unsurprising 0.2 percent.
Meanwhile, the Commerce Department said new home construction fell for the third month in a row in August. New homes and apartments dipped last month by 2.6 percent to a seasonally adjusted annual rate of 1.331 million units, the slowest rate in 12 years.
In August, commodity prices fell along with stocks as investors drew their cash out of riskier assets and put it into safer government securities. However, crude oil prices are back at record highs above $82 per barrel. Light, sweet crude rose 59 cents to $82.10 per barrel in premarket electronic trading on the New York Mercantile Exchange. Oil closed over $81 per barrel for the first time Tuesday.
And in a trend that's likely to exacerbate the effects of high commodities prices on U.S. consumers, the dollar slumped to a new low against the euro Wednesday. Overall, the dollar was mixed against other major currencies, while gold prices rose, extending the strong gains it made Tuesday.
But the rate cut was good news for the stock market, especially in industries related to financing and housing. Mortgage lender Countrywide Financial Corp. rose 97 cents, or 4.8 percent, to $20.85 after its chief executive, Angelo Mozilo, late Tuesday gave a positive forecast for his company.
European and Asian stocks surged following the Fed's rate cut.
Britain's FTSE 100 rose 2.84 percent, Germany's DAX index rose 2.19 percent, and France's CAC-40 rose 2.80 percent.
Japan's Nikkei index closed up 3.67 percent and Hong Kong's Hang Seng Index rose 3.98 percent.