Stocks Rise As Bernanke Reassures Fed’s Readiness To Act

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Stocks rose Friday after Federal Reserve chairman, Ben Bernanke, reiterated the Central Bank is ready to do more to stimulate the sluggish economy.

Bernanke’s comments were the latest confirmation the Central Bank is about to romp up its purchase of Treasury bonds to spark growth.

The Dow Jones industrial average rose 12 points in morning trading. A disappointing drop in revenue at General Electric Co. hurt its shares and were a slight drag on the Dow.

The technology-dominated Nasdaq composite index got an extra lift from Google Inc., whose shares skyrocketed after the Internet search giant reported a big jump in earnings.

Upbeat economic reports were also supporting stocks. Retail sales climbed in September by more than economists had forecast. Manufacturing activity in New York surged in October and pointed to continued expansion in the coming months.

In morning trading, the Dow rose 11.58, or 0.1 per cent, to 11,105.77. The Nasdaq jumped 19.21, or 0.8 per cent, to 2,454.59.

The Standard & Poor’s 500 index rose 3.77, or 0.3 per cent, to 1,177.58.

The Fed has hinted in recent weeks it would resume a programme it ran during the recession to stimulate the economy. Bernanke’s comments Friday were the most definitive proclamation yet that the Fed would act. However, he cautioned the central bank is still trying to figure out how big the bond purchase programme should be. Its size could further affect trading in the coming weeks.

The programme would likely be aimed at driving interest rates down from already low levels in an effort to spark borrowing and spending by companies and consumers.

More spending, in turn, could lift corporate sales and lead to more jobs. High unemployment remains one of the biggest drags on the economy.

Stocks have been rallying in recent weeks in anticipation the Fed would announce a firm plan at its next meeting, which wraps up November 3. Lower rates have helped stocks because it drives down yields on Treasury bonds. That makes stocks and other riskier investments like commodities more attractive. It also weakens the dollar, which has been pummeled in recent weeks.

The dollar is hovering near a 15-year low against the yen and is approaching its 2010 low against the euro.

Any action by the Fed could have the dual effect of increasing inflation. Bernanke said inflation still remains too low by historical standards. If rates drop and borrowing and spending pick up, prices would rise.

The government said Friday that the consumer price index, a measure of inflation at the retail level, rose just 0.1 per cent last month. Prices were flat excluding volatile food and energy costs.

Bond prices were trading in a tight range after Bernanke’s speech. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.55 per cent from 2.51 per cent late Thursday. Its yield is helped to set interest rates on mortgages and other consumer loans.

Google shares jumped $52.31, or 9.7 per cent, to $593.24. GE shares fell 79 cents, or 4.6 per cent, to $16.37.

In other earnings news, shares of toy maker Mattel Inc. dropped 7.3 per cent after it also failed to meet revenue forecasts. It fell $1.75 to $22.25.