Dow closes up 4% after Fed news

By Gary Strauss and Matt Krantz, USA TODAY
Updated 1h 38m ago

Wall Street closed sharply higher Tuesday after a fitful day of wild, heavy trading.

In its biggest one-day advance in two years, the Dow Jones industrial average managed to end the day up nearly 430 points to 11,239. The 4% gain recovered a large chunk of Monday's 634.85 point, or 5.5%, Dow decline.

The turn came after the Fed's Open Market Committee lowered its growth outlook for the economy and said it would maintain "exceptionally low" interest rates levels at least through mid-2013. The Fed's intial statements, however, drove prices down nearly 200 points to levels that spurred renewed buying.

Broader indexes, which also spent much of the day alternating between gains and losses, also began a late rebound, with the Standard & Poor's surging to close up 4.7% and the Nasdaq ending the day up 5.3%.

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The Fed noted that with prices on commodities such as crude oil falling, inflation had moderated.

After last week's USA's credit rating downgrade and mounting fears over the global economy in the wake of Europe's debt crisis, investors apparently were looking for positive market stimulators from the Fed.

"Nothing goes straight down. At some point , especially after a move like this, like a beach ball pulled underwater, it resists and goes back up. But that doesn't mean it stays up,'' says Doug Roberts, chief investment strategist for Channel Capital Research.

After nearly two weeks of selling which had stocks flirting with a bear market correction of 20%, bargain hunters stepped in early Tuesday.

"Stocks were cheap heading into the decline, and they just became cheaper," said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management. "As a long-term investor, that's what I like to see."

Overseas markets closed mixed earlier Monday, with Britain's FTSE up nearly 2%, but Germany's DAX off firtually flat. In Japan, the Nikkei lost 1.7%.

"Events in the U.S. are far more likely to turn markets some kind of more positive momentum than the political and currency mess in Europe,'' says Howard Wheeldon, senior strategist for London-based BGC Partners.

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Most strategists remained cautious ahead of the Fed meeting, noting that Tuesday's early gains were fueled largely by bargain hunters.

"I don't think we're entering a bear market. I don't think there's going to be a double-dip recession. There's enough good economic data out there. Companies' earnings have been solid,'' says Frank Fantozzi, head of Planned Financial Services. "Will we recover all this back in the next week? Unlikely. But this year, it's a strong possibility.

"If you're a long-term investor, even intermediate-term, making dramatic changes at this point isn't really healthy,'' he says. "If your investment options make sense to hold, you have to weather it.".

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