Stocks rallied for a second day on Wednesday after an aggressive U.S. rate cut soothed concern the U.S. economy would slip into recession, stirring demand for riskier investments and killing demand for safe-haven bonds.
Ebbing worry about a U.S. economic slowdown also propped up the dollar against a basket of major currencies.
Rate-sensitive shares in the housing and financial sectors
were some of the biggest gainers in the S&P after the Fed's policy move, despite disappointing earnings from investment bank Morgan Stanley (MS.N: Quote, Profile, Research).
What we are seeing today is a carry-through from the 50-basis-point rate cut that shocked us all yesterday. The financials are loving it, said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
The Dow Jones industrial average was up 101.04 points, or 0.73 percent, at 13,840.43. The Standard & Poor's 500 Index was up 11.79 points, or 0.78 percent, at 1,531.57. The Nasdaq Composite Index was up 20.84 points, or 0.79 percent, at 2,672.50.
Major global equity indexes also took a sharp leg higher. Tokyo's Nikkei surged 3.7 percent and the pan-European FTSEurofirst 300 ended up 2.6 percent.
BONDS FALL DESPITE MILD CPI
Meanwhile, tamer-than-expected readings on the August U.S. Consumer Price Index did little to calm bond investors' concerns that the Federal Reserve may be shying away from its vigilance on inflation.
The benchmark 10-year U.S. Treasury note was down 20/32 in price to yield 4.55 percent, up from 4.50 percent late on Tuesday. Bond prices move inversely to yields.
The 2-year U.S. Treasury note was down 2/32, with the yield at 4.02 percent, up from 4.00 percent late on Tuesday.
The 30-year U.S. Treasury bond was down more than a full point, with its price falling 1-18/32 and its yield rising to 4.85 percent from 4.77 percent late on Tuesday.
Consumer prices unexpectedly dipped 0.1 percent last month, according to U.S. government data. Stripping out food and energy, core CPI increased 0.2 percent in August, in line with expectations.
DOLLAR, OIL AND GOLD ADVANCE
The dollar recovered from a 15-year low against a basket of currencies. Tuesday's rate cut initially eroded the U.S. currency's yield appeal, but sentiment improved for the greenback on expectations that the risk of recession has diminished.
The euro was down 0.11 percent at $1.3965 from $1.3980 late on Tuesday. Against the yen, the dollar was up 0.03 percent at 116.10 yen from 116.06 late Tuesday.
The dollar index was up 0.2 percent at 79.371.
Commodity prices retreated after hitting peaks on the heels of the Fed rate cut. Spot gold rose to $726 an ounce, the most since May 2006, but retraced earlier gains to trade at $721.10, compared with $719.30/720.30 at 3:44 p.m. on Tuesday. COMEX most-active gold for December delivery rose $6.30 to $730.00 an ounce.
U.S. crude oil prices touched a record $82.51 on government data showing a drawdown in U.S. crude inventories in the latest week. Oil futures also got a lift from expectations that the rate cuts will boost economic growth and by extension, the appetite for commodities.
But by midday, oil had pulled back from its peak. The NYMEX October crude contract was up 14 cents at $81.65 a barrel.