Wall Street rises after Fed official signals a possible interest rate cut
NEW YORK -- Wall Street barreled higher Wednesday, driving the Dow Jones industrials up more than 200 points for the second day in a row after a top Federal Reserve official hinted that the central bank may lower interest rates again.
The market was elated after Fed Vice Chairman Donald Kohn told the Council on Foreign Relations that recent financial turbulence has reversed some of the improvement seen in markets in previous weeks, and could squeeze credit for households and businesses. He said tight financial conditions may merit "offsetting" policy from the central bank.
For investors, the possibility for lower rates seemed more compelling than persistent concerns about economic growth. The Fed will hold its last rate-setting meeting on Dec. 11.
"Everything we're seeing in the market is revolving about credit and encouragement that the Fed is going to bail us out again," said Alexander Paris, economist and market analyst for Chicago-based Barrington Research. "Investors are kind of ignoring the economic news like housing and durable orders that were all weaker than expected."
Indeed, hope for a rate cut helped offset a report that sales of existing homes fell for the eighth consecutive month in October. The National Association of Realtors reported sales of existing single-family homes and condominiums dropped by 1.2 percent last month to a seasonally adjusted annual rate of 4.97 million units.
The Commerce Department reported orders for big-ticket manufactured goods fell 0.4 percent in October -- the third straight month of decline and a weaker reading than the market expected.
The Dow rose 219.73, or 1.70 percent, to 13,178.17, adding to the blue-chip index's 215-point gain on Tuesday.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 28.86, or 2.02 percent, to 1,457.09, and the Nasdaq composite index gained 68.28, or 2.65 percent, to 2,649.08.
The dollar was mixed against other major currencies, while gold prices fell.
Crude oil rose 46 cents to $94.88 a barrel on the New York Mercantile Exchange.
The government reported an overall decline in crude supplies that matched analyst expectations. However, supplies grew at the closely-watched Nymex delivery terminal in Cushing, Okla.
Government bonds slipped as stocks rallied. The yield on the benchmark 10-year Treasury note rose to 3.99 percent from 3.95 percent late Tuesday.
Wall Street has had a volatile week so far. Economic and credit market concerns sent the Dow plunging 240 points on Monday, pushing the index to the level of a 10 percent market correction before it rebounded on Tuesday. Investors, though still anxious about the credit market crisis and losses at major financial institutions, were somewhat relieved after the investment arm of Arab city state Abu Dhabi invested $7.5 billion in Citigroup Inc.
Late Tuesday, Wells Fargo & Co. projected $1.4 billion in pretax losses on home equity loans that borrowers have stopped repaying amid a worsening housing slump. The losses at the fifth-largest U.S. bank were substantially less than charges taken by its larger competitors.
However, financial institutions rallied as investors hoped the industry can navigate through the credit crisis. Wells Fargo rose $1.35, or 4.5 percent, to $31.18; Citigroup rose $1.71, or 5.6 percent, to $32.03; and JPMorgan Chase & Co. spiked $1.20, or 2.8 percent, to $43.48.
Advancing issues led decliners by a 2-to-1 basis on the New York Stock Exchange, where volume came to 307.1 million.
The Russell 2000 index of smaller companies rose 11.97, or 1.61 percent, to 755.24.