Wall Street lifts stocks ahead of Fed meeting

Traders work on the floor of the New York Stock Exchange (NYSE) October 23, 2013. (REUTERS/Brendan...

Traders work on the floor of the New York Stock Exchange (NYSE) October 23, 2013. (REUTERS/Brendan McDermid)

Rodrigo Campos, Reuters

, Last Updated: 3:00 PM ET

Major U.S. stock indexes closed at record highs on Tuesday to lead global equities higher ahead of word from the Federal Reserve on the future of its stimulus program, while the U.S. dollar climbed the most in almost two months.

The Dow industrials and the S&P 500 closed at their highest levels ever on continued expectations the Fed, at the end of its policy-setting meeting on Wednesday, will keep its $85 billion monthly bond purchases intact.

Canada's main stock index ended higher on Tuesday, with gains in financial stocks and some resource issues offsetting a slip in gold miners, as economic data backed the view the U.S. Federal Reserve will leave its monetary stimulus intact.

The Toronto Stock Exchange's S&P/TSX composite index has gained almost 6% in the past three weeks and is at its highest level in more than two years. That burst followed the resolution of the U.S. debt and budget crisis and a growing confidence among investors that the Fed will not trim its stimulus anytime soon.

"If we see some tapering announcements coming off then there would be some real negative tone to the equity market, but I don't think we're going to get that," said Paul Gardner, a portfolio manager at Avenue Investment Management. "The numbers are just too uneven."

U.S. consumer spending rose in September, but auto sales fell, indicating sluggish economic growth in the third quarter. Other data on Tuesday showed consumer confidence fell sharply in October as a result of the partial government shutdown while producer prices unexpectedly fell in September, pointing to muted inflation.

Given that the resource-rich Canadian index has lagged U.S. stock indexes in recent years, investors seemed confident that it can keep rising as the corporate earnings season hits high gear. It ended up 68.77 points, or 0.51%, at 13,440.61.

"Generally speaking, the tone remains in a more upbeat phase going into the earnings period," said Sid Mokhtari, market technician and director of institutional equity research at CIBC World Markets.

"The assumptions should still be viewed constructively." Canadian Natural Resources Ltd gained 2.8% to C$33.61 and Suncor Energy Inc added 1.4% to C$38, while Goldcorp Inc slipped 2.9% to C$27.48 and Barrick Gold Corp lost 2.1% to C$20.71. Expectations of continued Fed stimulus, combined with signs of renewed strength in Canada's housing sector, have pushed several bank stocks to record highs in recent weeks.

Toronto-Dominion Bank gained 1% to C$95.15, Bank of Nova Scotia was up 1.1% at C$63.54, and Royal Bank of Canada, the country's largest lender, added 0.7% to C$70.06. Talisman Energy Inc gained 2.6% to C$13.25 after activist investor Carl Icahn said he had increased his stake in the oil producer. Thomson Reuters Corp was up 3.4% to C$38.58 after reporting net sales in its financial business turned positive and that it planned to cut 3,000 jobs.

Markets were thrown for a loop in mid-September, when the expectation was high for the Fed to start trimming its monthly purchases. Although some are wary of surprises when the Fed publishes a statement after its two-day meeting concludes, most see the recent rally in riskier assets and a dollar selloff as largely factoring in the decision.

"The Fed surprised me by not tapering in September and the key reason they cited was the fact inflation is running very moderately, and they still have lots of room on the inflation front," said Doug Foreman, co-chief investment officer at Kayne Anderson Rudnick Investment Management in Los Angeles.

"Certainly, the data today didn't give them anything different to think about that."

U.S. producer prices unexpectedly fell in September and the increase in the annual rate was the smallest in nearly four years.

After the closing bell in New York, the Dow Jones industrial average rose 111.42 points or 0.72%, to 15,680.35, the S&P 500 gained 9.84 points or 0.56%, to 1,771.95 and the Nasdaq Composite added 12.209 points or 0.31%, to 3,952.338.

The Dow and S&P closed at record highs while the Nasdaq ended at its highest since Sept. 8, 2000.

MSCI's world equity index rose 0.25%, trading this week within last week's range.

DOLLAR RALLIES

The U.S. dollar rose for a third straight session against major counterparts as traders bought back the currency on a view that markets already priced in expectations the Federal Reserve will maintain its bond-buying program in coming months.

Traders also said the dollar's latest drop, which took it to a nine-month low against a basket of currencies on Friday, may have been overdone. But sentiment remains negative and investors will likely see any rebound as a selling opportunity.

The dollar index rose 0.5% to 79.624 in its largest%age gain since early September, while the euro hit a one-week low against the greenback at $1.3735 but was still close to a two-year high hit last week.

U.S. Treasuries prices were flat, with yields close to three-month lows. The light trading volume suggested traders were reluctant to make big bets during the Fed meeting and as the Treasury Department sought to sell $96 billion in coupon-bearing debt this week.

"The market is directionless. There is no urgency to push yields higher or lower," said Lou Brien, market strategist at DRW Trading in Chicago.

Benchmark 10-year Treasury notes were up 2/32, the yield at 2.5034%.

Spot gold, which is up more than 7% from a three-month low hit mid-October, fell 0.5% to around $1,346 an ounce, pressured by the dollar strength.

Brent crude settled down 0.55% at $109.01 a barrel, though some traders said this was a consolidation after a 2.5% gain the previous day, when reports of a sharp drop in Libyan oil exports rekindled worries over global supply. U.S. crude settled down 0.5% at $98.20.

Libya's crude oil exports have dropped to less than 10% of capacity as the government has struggled to reach a deal with protesters blocking its big eastern facilities, with some demanding a greater share of the oil wealth.


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