Stocks rise on bet that Fed will keep rates stable


NEW YORK -- Wall Street advanced for a second straight session Tuesday as investors placed bets that the Federal Reserve won't indicate that it's leaning toward an interest rate hike.

Market watchers are anticipating that the Fed on Wednesday will leave rates on hold and say that economic growth is cooling while inflation remains a concern. The central bank has maintained this general stance for several months now, suggesting that rates are staying put.

Investors would ideally prefer a shift in posture toward cutting rates; such a move could boost consumer spending and make mortgages cheaper. But they appeared to be content to hear the status quo for now, and are tentatively optimistic that a rate hike isn't in the offing given that recent economic data has shown slowing growth and that inflation, though high, hasn't been running rampant.

"What is likely is no change at all. We might get a little commentary on the housing market nationwide ... but we don't think there's much action in the cards," said Jim Russell, director of core equity strategy for Fifth-Third Asset Management in Cincinnati.

Worries over the flagging housing market, particularly the subprime mortgage industry, have been dragging down stocks over the past month. But investors got some reassurance Tuesday from a Commerce Department report that construction of new homes rose by 9% in February to a seasonally adjusted annual rate of 1.525 million units, higher than the expected 1.450 million. The data wasn't all positive -- applications for building permits dropped -- but not at all suggestive that the sector is collapsing.

Stocks were also boosted by a fresh slate of takeover activity, notably a $5.93 billion offer to take Affiliated Computer Services Inc. private.

According to preliminary calculations, the Dow Jones industrial average rose 61.93, or 0.51%, to 12,288.10, after rising 115.76 on Monday.

Broader stock indicators gained as well. The Standard & Poor's 500 index advanced 8.88, or 0.63%, to 1,410.94, and the Nasdaq composite index added 13.80, or 0.58%, to 2,408.21.

Bonds also rose, as the Treasury markets shrugged off the housing data and an announcement from China that the country doesn't intend to build up its reserves. The yield on the benchmark 10-year Treasury note fell to 4.55% from 4.57% late Monday.
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