Stocks end mixed after rally on Fed stimulus discussion

 

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A day after U.S. stocks briefly topped four-year highs before fading and posting losses at the close, investors got what they wanted in the release of Federal Reserve minutes from a policy making meeting three weeks ago.

Stocks rallied after the 2 p.m. ET release, with three major indexes ending the day mixed. The Dow Jones industrial average was down 0.2%, or 31 points, while the Nasdaq rose 0.2%. Up a fractional amount was the S&P 500, gaining 0.02%.

The minutes of the July 31-Aug. 1 meeting show many Fed officials speaking with increased urgency about the need to provide more help for a weak U.S. economy. Further support would be needed "fairly soon" unless the economy improved significantly, the minutes show, although they didn't detail what steps might be taken.

Investors earlier shrugged off Wednesday's report from the National Association of Realtors that existing home sales rose 2.3% in July and home prices rebounded nearly 10%, suggesting that the nation's frustratingly slow recovery may be picking up steam.

The boldest move the Fed could take would be to launch a new program of bond buying to try to lower long-term interest rates to encourage more borrowing and spending. The minutes released Wednesday show many officials favored pushing the timetable for any increase in record-low short-term rates beyond the Fed's current plan of at least late 2014. Many economists think the target will be extended to mid-2015. And the minutes indicate this language might be altered at the September meeting.

"The key event today will be the publication of the (Fed) minutes," Barclays wrote in an early-morning research note to clients. "Recent data and financial market developments have been encouraging, though the longer-term weakness of the recovery means that all (Fed) loosening options will likely be discussed and none ruled out."

In the U.S., the stock market's gains in recent weeks has been partly driven, analysts say, on hopes that the Fed will come to the rescue again and provide another jolt of liquidity to credit markets by embarking on a fresh round of bond-buying. The Fed's massive purchases of Treasuries in the past have helped keep borrowing rates low or nudge them lower.

Stocks have also been helped by the hopes based on a pledge from Mario Draghi, the European Central Bank's top banker, who promised recently to do whatever it takes to keep the 17-country euro zone intact.

But overseas markets struggled Wednesday after a report showing exports from Japan fell to a six-month low in July. It was a reminder to investors that the global economy, not just the U.S., is struggling. Stocks closed lower in Asia and major indexes in Great Britain, France and Germany each ended the day lower about 1.5% in Europe.On Tuesday, the Standard & Poor's 500 index and the Dow Jones industrial average traded above multiyear highs. The S&P 500 hit levels not seen since May 2008 and the Dow climbed to December 2007 levels. But the buying that pushed the benchmark indexes above those fresh highs evaporated before the trading session had ended.

On Tuesday, the S&P 500 climbed as high as 1,426.68, above its April 2 high of 1,419.04 before closing down 4.96 points Tuesday to 1,413.17.

After jumping more than 50 points in morning trading above its May 2 high of 13,279.32, the Dow fell 68.06 points to close at 13,203.58.