Optimism About Fed Statement Leads To Rally On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved notably higher over the course of the trading day on Tuesday after recovering from an initial move to the downside. With the strong upward move on the day, the Dow reached a new record intraday high before giving back some ground.

The major averages pulled back off their best levels going into the close but remained firmly positive. The Dow climbed 100.83 points or 0.6 percent to 17,131.97, the Nasdaq rose 33.86 point or 0.8 percent to 4,552.76 and the S&P 500 advanced 14.85 points or 0.8 percent to 1,998.98.

The strength that emerged on Wall Street came even as traders looked ahead to the Federal Reserve's highly anticipated monetary policy announcement Wednesday afternoon.

Recent concerns about the outcome of the Fed meeting were partly offset by comments by Jon Hilsenrath, the Wall Street Journal's chief economics correspondent.

In a webcast previewing the Fed's statement, Hilsenrath said the central bank will continue to use the words "considerable time" to describe when interest rates will begin to rise but suggested that the wording will be qualified.

Hilsenrath, who is known to speak with many Fed officials, also said the Fed is likely to keep the "significant underutilization" of labor market resources comment in its statement.

Earlier in the day, Peter Boockvar, managing director at the Lindsey Group, said altering the line about "significant underutilization" of labor resources would say more about the timing of an interest rate hike than removing "considerable time."

Buying interest was also generated by a rally by commodity prices, which benefited from a Sina.com report indicating that China's central bank will provide 500 billion yuan of liquidity to the country's five biggest banks.

Sina.com said the People's Bank of China has started providing each of the banks with 100 billion yuan through standing lending-facilities.

On the U.S. economic front, the Labor Department said its producer price index was unchanged in August after inching up by 0.1 percent in July. The unchanged reading came in line with economist estimates.

Excluding decreases in food and energy prices, core producer prices ticked up by 0.1 percent in August after edging up by 0.2 percent in the previous month. The modest increase also matched estimates.

The report also showed that producer prices and core producer prices both increased by annual rates of 1.8 percent in August.

Sector News

After ending the previous session firmly in the red, semiconductor stocks showed a strong move back to the upside on the day. The Philadelphia Semiconductor Index surged up by 1.7 percent after ending Monday's trading at its worst closing level in almost a month.

Micron Technology (MU) and Freescale Semiconductor (FSL) turned in two of the sector's best performances, jumping by 4.8 percent and 3.9 percent, respectively.

Biotechnology stocks also regained some ground following yesterday's weakness, driving the NYSE Arca Biotechnology Index up by 1.6 percent. Myriad Genetics (MYGN) and Gilead Sciences (GILD) posted standout gains.

Significant strength was also visible among steel stocks, as reflected by the 1.4 percent gain posted by the NYSE Arca Steel Index. The strength in the steel sector reflected optimism about Chinese demand.

Healthcare provider, natural gas, and utilities stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Tuesday. Japan's Nikkei 225 Index edged down by 0.2 percent, while Hong Kong's Hang Seng Index slumped by 0.9 percent.

The major European markets also moved to the downside on the day. While the French CAC 40 Index fell by 0.4 percent, the German DAX Index and the U.K.'s FTSE 100 Index dipped by 0.3 percent and 0.2 percent, respectively.

In the bond market, treasuries saw considerable volatility before ending the session nearly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 2.589 percent.

Looking Ahead

While the Fed is likely to be in the spotlight on Wednesday, reports on consumer price inflation and homebuilder confidence may attract some attention ahead of the announcement from the central bank.

Additionally, FedEx (FDX), General Mills (GIS), and Lennar (LEN) are due to report their quarterly results before the start of trading on Wednesday.