Easing Hopes Lift Stocks, But Stronger Rally Fades
FOX Business: The Power to Prosper
Stock markets posted modest gains on Wednesday, falling sharply from session highs, as traders weighed how effective additional monetary easing from the Federal Reserve would be in reinvigorating the economic recovery.
Today's Markets
The Dow Jones Industrial Average gained 44.7 points, or 0.36%, to 12,492, the S&P 500 rose 4.1 points, or 0.31%, to 1,318 and the Nasdaq Composite climbed 15 points, or 0.54%, to 2,797. The FOX 50 rose 4.1 points to 928.
Federal Reserve Chairman Ben Bernanke told Congress that "additional policy support" may be necessary if the economy weakens further, sending the markets soaring in morning trade.
However, other high-ranking Fed officials came out later in the day speaking less optimistically on additional monetary easing. In particular, Federal Reserve Bank of Dallas President Richard Fisher said the effectiveness of monetary policy is waning, and said lawmakers need to enact fiscal policies to pull the U.S. out of the "very difficult predicament it finds itself in.
A recent bout of downbeat economic data, particularly a dismal June jobs report, has sapped Wall Street's confidence over the pace of the economic recovery. The central bank's controversial long-term asset buying program, QE2, ended in June, although short-term interest rates remain at the historically low level of between 0% and 0.25%.
The deadlock over the debt ceiling also weighed on sentiment. Indeed, President Barack Obama warned on Tuesday that the government cannot guarantee 70 million benefit checks should the ceiling not pass. Failure to raise the debt ceiling could also force the U.S. to selectively default on its debt, which many analysts say could slam worldwide credit markets.
The euro soared 1.4% against the U.S. dollar as traders considered whether the potential easing from the Fed may further pressure interest American interest rates. The greenback slipped 0.93% against a basket of world currencies.
The prices paid to import goods fell for the first time in a little over a year, driven by a 1.6% decrease in petroleum prices in June, according to the Labor Department. Import prices ticked lower by 0.5%, which is just shy of estimates of a 0.6% decline. Meanwhile, export prices climbed 0.1%, a slightly smaller increase than the 0.2% economists were expecting.
China's economy expanded at an annualized rate of 9.5% in the second quarter, topping economists estimates of a 9.4% growth rate. The pace was still the slowest since the third quarter of 2009. However, officials there have been focused heavily on slowing down quickly accelerating price inflation, which they hope may be somewhat tempered by a slower rate of economic growth.
"Better than expected economic data out of China is helping to ease some global growth concerns and helping to lift most overseas equity markets," wrote Peter Boockvar, managing director at Miller Tabak+Co., in a research note.
Fears that the debt crisis that has gripped Europe spooked traders on Tuesday after Moody's slashed Ireland's credit rating into "junk" territory, warning that the country might need another rescue from the European Union and International Monetary Fund. Italian credit markets were also under pressure amid concerns the crisis that nearly toppled Greece may spread to Italy, one of Europe's largest economies.
However, Italian lawmakers quickly responded to wariness in the asset markets on Wednesday, promising to pass a roughly $56 billion fiscal package, including austerity measures to get the country that has $2.6 trillion in public debt, back on track.
Also from Europe, Fitch Ratings sliced Greece's credit rating to CCC from B+, which is deep in junk territory, and only a single grade above default. Fitch joins Standard & Poor's and Moody's, who both have similarly low ratings for the country.
Energy markets got a boost from an unexpectedly bullish inventory report. Crude stocks fell 3.1 million barrels last week according to the Energy Department, a much larger draw than the 1.8 million analysts forecast. Gasoline inventories fell 840,000 barrels, also a bigger decrease than the 200,000 analysts were expecting.
Light, sweet crude gained 62 cents, or 0.64%, to $98.05 a barrel. Wholesale RBOB gasoline jumped 5 cents, or 1.7%, to $3.15 a gallon.
Consumer gasoline prices continue moving higher this week. A gallon of regular gasoline costs $3.65 on average, up from $3.57 last week, and also well higher than the $2.71 drivers paid last year, according to the AAA Fuel Gauge Report.
Gold climbed $23.20, or 1.5%, to an all-time high of $1,586 a troy ounce. Silver soared $2.52, or 7.1%, to $38.15 a troy ounce.
Corporate News
News Corp. (NASDAQ:NWSA) is dropping its bid to acquire the remainder of British Sky Broadcasting Group (BSkyB) that is doesn't already own. News Corp. is the parent company of FOX Business Network and FOXBusiness.com.
Kinetic Concepts (NYSE:KCI), a medical device maker, is being taken private by a group lead by Apax Partners for $5 billion in cash, and $6.3 billion including the acquisition of debt.
Foreign Markets
The English FTSE 100 gained 0.64% to 5,906, the French CAC 40 rose 0.51% to 3,793 and the German DAX climbed 1.3% to 7,268.
In Asia, the Japanese Nikkei 225 rose 0.37% and the Chinese Hang Seng soared 1.2% to 21,927.