US stocks jump as Fed raises view of economy

NEW YORK (AP) — A more upbeat Federal Reserve is reassuring investors that they’ve been making the right bets.

Stocks bounced higher Wednesday after the central bank ended a two-day meeting by saying the economy appears to be “leveling out” rather than shrinking at a slower rate. The Fed’s more positive take on the economy than it had in June wasn’t surprising but it still bolstered hopes for a recovery.

The Dow rose 120.16, or 1.3 percent, to 9,361.61. The Standard & Poor’s 500 index rose 11.46, or 1.2 percent, to 1,005.81, while the Nasdaq composite index gained 28.99, or 1.5 percent, to 1,998.72.

Wednesday’s advance re-energized the market’s summer rally after it had stalled on Monday and Tuesday. But long-term Treasurys fell after the Fed said it would slow its purchases of government debt.

Financial and technology shares posted some of the strongest gains after a ratings upgrade and profit reports provided evidence of a rebound. The stock market’s advance was itself adding to bank and insurance stock gains – its climb means their investment portfolios are surging in value.

Investors who sent stocks soaring the past four weeks on expectations for a recovery went into Wednesday hoping for a change in the Fed’s language. Many investors were anticipating that the central bank’s assessment might be moving closer to their own after the Labor Department said Friday that the nation’s unemployment rate fell in July for the first time in 15 months.

The Fed’s statement was particularly gratifying after traders suffered an attack of nerves Tuesday that slashed one percent from the major indexes. Concerns about the health of banks fed that drop, but the Fed’s comments soothed those fears. The central bank also left interest rates unchanged, as expected.

“The Fed statement didn’t disappoint,” said Peter Cardillo, chief market economist with Avalon Partners in New York. “Things have improved, and the economy is probably pulling out of the recession.”

Still, the central bank is being careful not to withdraw too much economic support too soon, said Doug Roberts, chief investment strategist for New Jersey-based Channel Capital Research. “They believe the economy is still pretty weak,” he said.