U.S. stocks rise ahead of Federal Reserve’s rate decision
NEW YORK: The U.S. stock market advanced Wednesday, driving the Dow Jones industrial average up more than 100 points as investors reacted to better-than-expected economic and corporate reports ahead of the Federal Reserves decision on interest rates.
Most investors expect the central bank to again lower its benchmark fed funds rate, this time by a quarter point, to 2 percent. However, many also believe policymakers will signal their intention to put rates on hold to fight inflation. The Fed is scheduled to announce its decision at 19:15 p.m. GMT.
Though inflation appears to be a growing threat, thats not to say economic weakness is not a risk, either. The Commerce Department estimated that the U.S. gross domestic product rose at a very modest seasonally adjusted annual rate of 0.6 percent during the first quarter, while the Chicago purchasing managers index showed a second straight month of contraction in Midwest manufacturing.
However, both readings were better than the market anticipated.
Economists had forecast a 0.5 percent rise in first-quarter GDP, and a reading of 48.0 for the April purchasing managers index instead of the reported 48.2.
“Our view is things are in a bottoming phase,” said Joe Balestrino, a portfolio manager at Federated Investors. Data has “been consistent in that its been modestly better than expected.”
First-quarter results from two consumer-focused companies in the Dow - General Motors and Procter Gamble - also beat analysts predictions and helped lift the market.
In late morning trading, the Dow rose 107.47, or 0.84 percent, to 12,939.41.
Broader stock indicators also advanced. The Standard Poors 500 index futures rose 6.89, or 0.50 percent, to 1,397.83, while the Nasdaq composite index added 17.24, or 0.71 percent, to 2,443.34.
Bond prices lifted as well. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.80 percent from 3.82 percent late Tuesday.
The dollar was mixed against other major currencies, while gold prices edged higher.
Oil prices moved higher after sliding of more than $3 a barrel in the previous session on a strengthening dollar and data showing a dramatic drop in American fuel demand. Light, sweet crude for June delivery rose 60 cents to $116.23 a barrel on the New York Mercantile Exchange.
GM lost $3.3 billion in the first quarter as strong overseas growth was offset by a strike at a supplier and weak U.S. sales.
However, the loss was smaller than Wall Street analysts expected, and shares jumped $2.82, or 13.3 percent, to $24.02.
Procter Gamble Co. said price increases and cost controls helped offset higher commodity costs, pushing its third quarter profit up 8 percent. PG also lifted its full-year outlook, and its shares rose $2.40, or 3.6 percent, to $68.29.
Meanwhile, software maker SAP AG said its profit slipped in the first quarter because of the weaker dollar and its takeover of another software company, Business Objects. Though sales were higher and SAP raised its 2008 outlook, SAP shares fell $1.63, or 3.1 percent, to $50.82.
In other corporate news, Citigroup said late Tuesday it plans to sell $3 billion of common stock to boost its capital levels. The largest U.S. bank is raising more capital to offset more than $45 billion of write-downs and credit losses it has taken since June 30. Citigroup shares fell 74 cents, or 2.8 percent, to $25.58.
