Reassuring news boosts markets

Stocks dashed higher Tuesday as investors welcomed strong earnings from financial services companies, upbeat economic data and some reassuring news from the Federal Reserve.

The Fed’s decision to raise short-term interest rates by another quarter-percentage point to 1.75 percent did not come as a surprise to the market. The widely anticipated decision and the statement issued alongside it were viewed as a signal that the central bank sees continued improvements in the economic outlook and inflation.

“I think it’s basically a pretty positive statement,” said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. “I doubt that this hike, which was widely expected, will have any meaningful impact on the economy, but it will have a positive psychological effect on the market, because it is reassuring the world that the economy is doing better.”

The Dow Jones industrial average closed up 40.04, or 0.4 percent, at 10,244.93.

The broader gauges were also higher. The Standard & Poor’s 500 index added 7.10, or 0.6 percent, to 1,129.30, its highest close since July 1.

The Nasdaq composite index gained 13.11, or 0.7 percent, to 1,921.18, its best finish in two months.

In economic news, the Commerce Department reported robust housing construction last month. The 2 million-unit pace of housing construction clocked for August was the highest level of activity in five months, and far outpaced the decline economists were expecting. July’s housing figures were revised upward.

The upbeat economic data reinforced Fed Chairman Alan Greenspan’s view that the economy is on firmer footing since striking a soft patch in the late spring. In the statement issued Tuesday, the Fed said “output growth appears to have regained some traction, and labor market conditions have improved modestly.”

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange. Preliminary consolidated volume came to 1.64 billion shares traded, compared with 1.49 billion shares on Monday.

The Russell 2000 index, which tracks smaller company stocks, was up 6.18, or 1.1 percent, at 576.92.

Overseas, Japan’s Nikkei 225 closed 0.01 percent lower Tuesday. In Europe, France’s CAC-40 added 0.7 percent, Britain’s FTSE 100 rose 0.6 percent and Germany’s DAX index was up 0.3 percent.


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