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Wall Street roared higher Thursday after the Federal Reserve took decisive action aimed at giving the U.S. economy a much-needed jolt of energy.
The Dow Jones Industrial Average rallied 207 points, or 1.6%, to 13440, the S&P 500 jumped 23.4 points, or 1.6%, to 1460 and the Nasdaq Composite climbed 41.5 points, or 1.3%, to 3156.
The advance propelled the broad S&P 500 and Dow to their highest level since December 2007. Meanwhile, the Nasdaq closed at its highest mark since November 2000. Every major sector ended in the green on the day, led by financial, materials, energy and consumer staple shares.
In a sign of the breadth of the buying, there were nearly 10 trades in advancing shares for each in a declining share on the New York Stock Exchange, according data compiled by FOX Business. Overall volume on the NYSE was at its highest since June 29. The VIX, which is sometimes referred to as Wall Street's fear gauge, plunged close to 12%.
'Pulling out all the Stops'
The Federal Reserve said Thursday it will purchase mortgage-backed assets at a rate of $40 billion per month in a bid to bolster the flagging U.S. economy. The Fed expects its programs to increase its holdings of long-term securities by about $85 billion a month through the end of the year.
"The Fed is pulling out all the stops to drive down mortgage rates with this program," Paul Edelstein, director of financial economics at IHS Global Insight wrote in a note to clients. He cautioned, however, that the impact on gross domestic product and unemployment will "probably be imperceptible."
The central bank also extended its pledge to keep short-term interest rates at historically low levels until mid-2015. The goal of both of these programs is to encourage businesses to invest and lend and to drive down mortgage rates in the hopes of propelling the burgeoning recovery in the housing market.
"We’re not sure what the economic effects of this program will be – it should help growth and employment on the margin – but of all the announcements the Fed could have made today, this is very nearly one of the most accommodative that could have been reasonably expected," Dan Greenhaus, chief global strategist at BTIG wrote in an email following the announcement.
The announcement comes amid a bleak backdrop for the economy. The labor market added a paltry 96,000 jobs last month. Meanwhile, the U.S. economy grew at a pace of 1.7% in the second quarter, slower than the 2% growth rate in the first quarter.
Traders were also mulling two economic reports. The Labor Department said first-time claims for unemployment benefits jumped 15,000 to 382,000 last week. Claims were expected to rise to 370,000 from an initially reported 365,000. However, the Labor Department noted several states reported increases in claims due to Tropical Storm Isaac, resulting in about 9,000 in unadjusted terms.
Meanwhile, wholesale prices took the biggest jump since June 2009 in August. The Labor Department's gauge of producer prices climbed 1.7%, a bigger increase than the 1.1% forecast. Excluding the more volatile food and energy components, so-called core prices were up 0.2%, in line with estimates. Prices at the headline level are up 2% on the year, or 2.5% at the core level.
Oil futures advanced. The benchmark contract traded in New York climbed $1.30, or 1.3%, to $98.31 a barrel. Wholesale New York Harbor gasoline fell 1.3% to $2.962 a gallon.
Gold prices soared $38.40, or 2.2%, to $1,772 a troy ounce.
The Euro Stoxx 50 fell 0.84% to 2543, the English FTSE 100 rose 0.65% to 5820 and the German DAX dipped 0.45% to 7310.
In Asia, the Japanese Nikkei 225 advanced 0.39% to 8995 and the Chinese Hang Seng slipped 0.14% to 20048.