Stocks advance on hint of rate cut

NEW YORK – Wall Street advanced sharply Tuesday as investors interpreted minutes from the Federal Reserve’s last meeting as indicating the central bank is ready to keep cutting interest rates to boost the economy. The Dow Jones industrial average and Standard & Poor’s 500 index hit records.

The minutes from the Federal Open Market Committee’s Sept. 18 meeting, when Fed governors voted unanimously to cut rates a half percentage point, also showed that officials were concerned that the weakness in the dollar could lead to higher inflation. But the Fed – signaling it is more willing to intervene – also said the economic outlook was uncertain because of the summer’s credit crisis, and that there were still risks to growth that justified lower rates.

The major indexes were little changed just before the minutes came out and then rose sharply. Investors were hoping that the Fed would lean toward future rate cuts; central bankers will meet again Oct. 30-31.

“This adds fuel to the fire that the Fed is going to try and reinvigorate the economy with further cuts, and that’s what they are committed to,” said Richard E. Cripps, chief market strategist for Stifel Nicolaus. “The likelihood of having a second cut either this month or at the December meeting seems greater than before the minutes.”

According to preliminary calculations, the Dow rose 120.80, or 0.86 percent, to 14,164.53, eclipsing the previous record close of 14,087.55 reached Oct. 1. The Dow had a new trading high as well, rising to 14,166.97.

The S&P rose 12.57, or 0.81 percent, to a record close of 1,565.15. It surpassed the previous record close of 1,557.59, reached last Friday, and also hit a new trading high of 1,565.26.

The Nasdaq composite index rose 16.54, or 0.59 percent, 2,803.91.

Bonds slipped after the Fed minutes were released, with the 10-year Treasury note yield – which moves inversely to its price – rising to 4.65 percent from 4.62 percent before the minutes’ release. The Treasury market was closed Monday for Columbus Day, and its yield was 4.64 percent on Friday.

Investors have been waiting for any clue about the Fed’s plans for the rest of the year, with most economists expecting a rate cut before the year is out. However, those hopes were somewhat dashed on Friday after the government reported better-than-expected employment numbers that eased fears the economy would slide into a recession.

Policymakers during the Sept. 18 meeting believed that “some further slowing of employment growth was likely.” They also believed – before seeing the jobs report – that a further slowing in employment was likely this year.