Wall Street buoyed on Fed stimulus optimism

Dow Jones: 11,808.79 (+267.01) Nasdaq: 2,637.46 (+38.84) S&P 500: 1,238.25 (+22.86)US STOCKS advanced yesterday, sending the Standard and Poor's 500 Index toward its longest weekly rally since February, amid speculation of an agreement to contain Europe's debt crisis and further Federal Reserve stimulus.

Morgan Stanley rose 2.2 per cent to $16.98 and Wells Fargo added 1.6 per cent to $26.17 as European lenders rallied.

Alcoa, the largest US aluminum producer, rose 2.4 per cent to $10.19 and Boeing climbed 3.2 per cent to $64.50, pacing gains in companies most-tied to the economy.

McDonald’s added 3.3 per cent to $91.97. CEO Jim Skinner has sought to draw American diners with low-priced menu items, such as the $1 burgers, as the nation’s 9.1 per cent unemployment rate saps consumer confidence.

Honeywell climbed 5.5 per cent to $51.10 as the company increased its full-year forecast. Honeywell and other US manufacturers have posted earnings growth this year amid a slowing economy by keeping costs in check and expanding abroad.

The Dow Jones Industrial Average rose 267.01 points, or 2.31 per cent, to 11,808.79.

“There’s a sense that Europe will come out with something that will calm down imminent fears of the crisis escalating out of control,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $360 billion, said.

European finance ministers were meeting in Brussels yesterday to lay the groundwork for tomorrow’s gathering of government leaders that had been the deadline for a solution to the debt crisis. A further summit is scheduled for October 26th after Germany and France said the European Union needs more time to seal a “global and ambitious” accord.

Investors also reacted to comments late yesterday from Federal Reserve governor Daniel Tarullo, who called for resuming large-scale purchases of mortgage bonds, boosting chances of a third round of asset buying aimed at reviving growth, known as quantitative easing. Yesterday, Fed vice chairman Janet Yellen said a third round of large-scale securities purchases might become warranted if necessary to boost a US economy challenged by unemployment and financial turmoil. – (Bloomberg)