Stocks up, bonds soar on Fed remarks

Stocks climbed in a seesaw session Wednesday, rising after the president of the Philadelphia Federal Reserve signaled the central bank could change its interest rate policy in the aftermath of Hurricane Katrina.

Wall Street moved higher after Philadelphia Fed President Anthony Santomero called increasing oil prices a “tax” and told CNBC it was too early to say whether the Fed would change its interest rate policy in light of the hurricane’s wreckage. Many traders took the comment as a signal that the Fed’s year-plus streak of rate hikes might end sooner than expected.

“The president of the Philly Fed is saying the Fed has to adapt to changing circumstances,” said Todd Leone, managing director of equity trading at SG Cowen Securities. “With what’s going on in New Orleans, I don’t think the Fed can raise rates.”

Bonds, which had soared all day, rose even higher after Santomero’s comments.

Falling oil prices also helped stocks. After closing at a record high of $69.81 Tuesday, oil settled Wednesday at $68.94, down 32 cents on the New York Mercantile Exchange.

The Dow Jones industrial average rose 68.78, or 0.66 percent, to 10,481.60.

Broader stock indicators were sharply higher. The Standard & Poor’s 500 index rose 11.92, or 0.99 percent, to 1,220.33, and the Nasdaq composite index rose 22.33, or 1.05 percent, to 2,152.09.

Bonds soared, with the yield on the 10-year Treasury note dipping to 4.02 percent from 4.10 percent late Tuesday. Ten-year notes had closed at 4.17 percent late Monday. The U.S. dollar was mixed against other major currencies in European trading. Gold prices were higher.

Oil prices swung wildly, at one point dropping more than $2 a barrel in trading on the NYMEX. Oil had climbed as high as $70.65 a barrel overnight before slipping after U.S. Energy Secretary Samuel W. Bodman’s morning announcement that the government would release oil from its petroleum reserves.

Advancing issues led decliners by roughly 3 to 1 on the New York Stock Exchange, where volume was 1.80 billion shares, up sharply from 1.46 billion at the same time Tuesday.

The Russell 2000 index of smaller companies rose 12.75, or 1.95 percent, to 666.51.

Overseas, Japan’s Nikkei stock average fell 0.32 percent. Britain’s FTSE 100 rose 0.78 percent, Germany’s DAX index was up 0.79 percent, and France’s CAC-40 was up 0.98 percent.