Stocks end higher as Fed sees 'somewhat slower' slide in economy; S&P 500 hits 3-month high Tim Paradis and Madlen Read, AP Business Writer On Wednesday April 29, 2009, 5:24 pm EDT
NEW YORK (AP) -- The Fed confirmed what Wall Street has already concluded: The recession is starting to ease. Federal Reserve policymakers said at the end of a two-day meeting Wednesday that while the economy is still receding, the pace of decline "appears to be somewhat slower" than the last time they met in mid-March. That was confirmation enough for the stock market. Major indexes, which had already been up sharply ahead of the announcement on other signs the economy is stabilizing, posted gains of more than 2 percent. The Dow Jones industrial average jumped 169 points to its highest close since Feb. 9. "You had the Federal Reserve endorsing the basic stance that the economy is beginning to stabilize," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. The Dow is now 25 percent above its early March lows, though stocks have been unsteady over the past several days on fears of a potential swine flu pandemic and persistent concerns about the country's biggest banks. Stocks began the day higher as investors responded to bright spots within a weaker-than-expected report on the nation's economic output for the first three months of the year. Gross domestic product contracted at an annual rate of 6.1 percent, much steeper than the 5 percent forecast by economists polled by Thomson Reuters. But the glimmers of good news in the report drove the Standard & Poor's 500 rose to its highest trading level since late January. Investors were encourage by a rebound in consumer spending, which accounts for more than two-thirds of U.S. economic activity, and a decline in business inventories. On President Barack Obama's 100th day in office, the GDP report at least provided signs that the nation is seeing its economic slide start to moderate. The Dow jumped 168.78, or 2.1 percent, to 8,185.73. The gain leaves the blue chips down about 591 points, or 6.7 percent for the year. The Standard & Poor's 500 index gained 18.48, or 2.2 percent, to 873.64, its highest close since Jan. 28. The Nasdaq composite index advanced 38.13, or 2.3 percent, to 1,711.94. The tech-heavy index posted its highest finish since Nov. 4 and is up 8.6 percent for the year. Michael Sheldon, chief market strategist at Westport, Conn.-based RDM Financial, said the drop in business stockpiles "should set the stage for a pickup in production, employment and profits." Investors are still nervous that some banks, notably Citigroup Inc. and Bank of America Corp., might have to get more capital from the government or other investors. Going in to Wednesday's session, the Dow had lost 59 points this week. Wednesday's GDP report follows recent data that suggests consumers have taken on a more upbeat outlook on the economy, which can translate into more spending and bigger corporate profits. On Tuesday, a report showing a sharp jump in consumer confidence in April helped pull stocks from an early decline and left the market with just modest losses. Better-than-expected earnings have been boosting the market as well. Media conglomerate Time Warner Inc. said first-quarter profit fell 14 percent on deteriorating ad sales, but the results were better than expected. Defense contractor General Dynamics Corp.'s first-quarter earnings rose 3 percent on sales of warships and other military equipment. Time Warner rose 21 cents, or 1 percent, to $21.98, while General Dynamics rose $2.73, or 5.4 percent, to $53.34. Investors are still keenly focused on the financial sector, though. Bank of America held a contentious annual meeting Wednesday. The Charlotte, N.C.-based bank -- one of the biggest recipients of government support -- is facing pressure from shareholders for its acquisition of Merrill Lynch. Shareholders re-elected the bank's board, according to a person with knowledge of the vote tally who spoke on condition of anonymity because he was not authorized to disclose the results. But BofA executives said they needed more time to count the ballots for the 11 measures that were put to a vote -- including a shareholder proposal to strip CEO Ken Lewis of his chairman's title. Meanwhile, Citigroup, which has also received large amounts of federal aid, is trying to figure out how to retain workers. Citigroup CEO Vikram Pandit has talked with Treasury Secretary Timothy Geithner about the possibility of paying special bonuses to keep demoralized workers from getting scooped up by competitors, a person familiar with the matter said. The person, who spoke on condition of anonymity, was not authorized to disclose details about the private talks. According to a report in The Wall Street Journal late Tuesday, some key employees are threatening to leave the company because of pay restrictions the government placed on the bank. Bank of America rose 53 cents, or 6.5 percent, to $8.68, while Citigroup rose 23 cents, or 8 percent, to $3.12. In other trading, the Russell 2000 index of smaller companies rose 18.63, or 3.9 percent, to 491.47. About five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.5 billion shares. Bond prices fell after the Fed said it saw signs that the economy was finding its footing. That decreased demand for the safety of government debt and pushed the yield on the 10-year Treasury note up to 3.11 percent from 3.01 percent on Tuesday. The dollar fell against most other major currencies. Gold prices rose. Light, sweet crude rose $1.05 to settle at $50.97 a barrel on the New York Mercantile Exchange. Overseas, Britain's FTSE 100 rose 2.3 percent, Germany's DAX index rose 2.1 percent and France's CAC-40 rose 2.2 percent. Japan's Nikkei stock average fell 2.7 percent.
