After day of tumult, dow closes up 430 points

Stocks rallied broadly on Wall Street on Tuesday, with most of the gains coming in late trading that followed a statement by the Federal Reserve saying it would hold short-term interest rates near zero through mid-2013.
Surging several hundred points, shares capped off with signs of recovery amid wide fluctuations a day after the worst sell-off on Wall Street in more than two years.
At the close, the Dow Jones industrial average was up 429.92 points, or nearly 4 percent, at 11,239.77. The Standard & Poor’s 500-stock index was up 53.07 points, or 4.74 percent, at 1,172.53, the largest point gain in a day since March 2009, and the Nasdaq composite was up 5.29 percent, or 124.83 points, at 2,482.52.
It was a marked contrast to the close on Aug. 8, when the markets had spiraled downward on the first trading day after Standard & Poor’s downgraded its rating of the United States government’s long-term debt.
Tuesday’s gains were the largest for the broader market as measured by the S.&P. and for the Dow since March 2009, although the losses in recent weeks have been so steep that the indexes are still down in the year to date.
The Dow surged 503.29 points, or 4.69 percent, in the final hour of trading.
The wild finish on Tuesday came after the Federal Reserve said it would hold short-term interest rates near zero through mid-2013 to support the faltering economy, even though it announced no new measures to further reduce long-term interest rates or otherwise stimulate renewed growth.
The indexes gyrated in the half-hour after the announcement, shedding gains, plunging sharply and recovering their losses.
“It was quite a violent reaction,” said Ron Florance, the managing director of investment strategy for Wells Fargo Private Bank. “I am surprised at the vigor of the market reaction.”
He said the Fed announcement was basically telling investors they have “access to free money until 2013.”
Stocks surged and sustained the gains once the statement sank in.
“It was the first time that they specifically stated that they would hold the funds rate” at that level for a specific period of time, he added, referring to the Fed statement. “That gives investors a time horizon, and that gives you certainty.”
The response in the bond market was telling. Two-year yields, already at a record low, were down to 0.186 percent.
The yield on the benchmark United States Treasury 10-year notes fell to almost 2.2 percent, from 2.32 percent late Monday.
Jonathan Lewis, founding principal and chairman of the investment committee of Samson Capital Advisors, said the Fed statement “had the impact of the Hindenburg.”
The initial stock market reaction was not a happy one, he said. But then, the bond market focused carefully on the words, which were “really quite unusual” as the Fed designated a specific time period for the low rates.
The ignition mechanism for stocks was seeing the Treasury rally, implying low rates for a specific period of time, which would improve the relative valuations of equities.
“The afterburners kicked in as stocks watched an extraordinary Treasury rally,” Lewis said.
In addition, there was short covering. “One can imagine there must have been short positions accelerating the fall,” he said. “This began to be a reason to cover.”
After the downgrade, investors are trying to work through the uncertainty, and they had been awaiting the meeting of the Fed’s policy board for any guidance or signals about the economy or the possibility of the Fed injecting any further monetary stimulus.
Investors have been hoping that the recent turmoil in global stock markets would abate, but they expected indexes to remain unsettled.
Concerns are entrenched and the downgrade worsened the already low sentiment in the marketplace, battered by sovereign fiscal problems in Europe and worries over the economy in the United States.

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