Stocks rise after Fed pledges to keep rates low

NEW YORK — The Federal Reserve's mildly upbeat take on the economy and its plans to hold interest rates low gave stocks a lift.

The Dow Jones industrial average rose almost 44 points Tuesday for its sixth straight gain. Broader indexes also posted bigger advances. Prices for Treasurys rose as the Fed said again that it expects to keep interest rates low for "an extended period."

The Fed also said in a statement following its meeting on monetary policy that businesses are spending "significantly" more on equipment and software. The central bank said that employment is stabilizing. That's a brighter assessment of the job market than at its last meeting in late January. Still, the Fed noted that employers remain reluctant to hire.

"That's a major statement. That's saying that that's one major risk that's going to remain for a while," said Guy LeBas, chief fixed income strategist of Janney Montgomery Scott in Philadelphia, referring to cautious employers.

Many investors appear relieved that the Fed will hold rates low to help the economy recover. As the economy improves, the Fed will need to start raising rates to stop prices from rising too fast. For now, though, the Fed repeated its belief that inflation is likely to remain subdued.

The Fed's statement hurt the dollar, which draws support from higher rates. The central bank's assessment of the economy also lessened investors' need to find safe places like the dollar to invest in.

The dollar's slide, in turn, raised commodity prices and the stocks of energy and materials companies.

The Fed also said it still plans to stop buying mortgage-backed securities from Fannie Mae and Freddie Mac at the end of the month. Policymakers also noted that construction of homes has been little changed and remains weak.

"We are passing through a historic phase where the Fed's emergency responses to the Great Recession are now behind us and we're incrementally getting back to business as usual," said Robert Dye, senior economist at PNC Financial Services Group in Pittsburgh.

Stocks rose in morning trading after the Standard & Poor's credit rating agency signed off on Greece's plan to slash its budget deficit. That eased concerns that the country will default on debt, and that its problems might hurt the economies of other European nations. The 16 countries that share the euro agreed to help Greece with loans if necessary.

The Dow rose 43.83, or 0.4 percent, to 10,685.98. It's up 1.3 percent in the past six days and stands at its highest level since Jan. 19.

The Standard & Poor's 500 index rose 8.95, or 0.8 percent, to 1,159.46, its highest close since October 2008.

The Nasdaq composite index rose 15.80, or 0.7 percent, to 2,378.01. The Nasdaq is at its highest level since August 2008.

The stock market has been recording steady gains for more than a month. Investors are looking for signs that the recovery is strong enough to justify the recent climb as well as the steep rebound in stocks in the past 12 months.

Dan Dolan, director of Wealth Management Strategies at Select Sector SPDRs in Garden City, N.Y., said the small moves higher are a sign that investors aren't getting overconfident.

"On the margin these little slow movements are constructive. There is still a lot of doubt in the market, which probably is a good thing."

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.66 percent from 3.70 percent late Monday.

The dollar fell against other major currencies, while gold prices rose.

Crude oil rose $1.90 to $81.70 per barrel on the New York Mercantile Exchange as the dollar fell. A weaker dollar makes commodities less expensive to foreign buyers.

The Fed's decision on mortgage buying came as investors saw new evidence that housing remains weak. The Commerce Department said Tuesday that construction of homes fell 5.9 percent last month to a seasonally adjusted annual rate of 575,000 units. That was slightly better than the rate of 570,000 units economists polled by Thomson Reuters predicted.

January activity was revised higher to a pace of 622,000 units, the best showing in 14 months. But applications for new permits fell 1.6 percent. They are considered a good indicator of future activity.

General Electric Co. gave a boost to the Dow after the company said it would increase its dividend in 2011. The conglomerate cut its payout two years ago as the recession pounded the company's financial arm. GE shares rose 78 cents, or 4.5 percent, to $18.07.

Among energy and materials stocks, Peabody Energy Corp. rose $1.65, or 3.5 percent, to $48.81, while United States Steel Corp. rose $1.80, or 3 percent, to $62.49.

More than two stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume rose to 4.5 billion shares from 4.2 billion Monday.

The Russell 2000 index of smaller companies rose 5.17, or 0.8 percent, to 679.58.

Stocks rose in Europe after concern about Greece's financial woes ebbed. Britain's FTSE 100 rose 0.8 percent, Germany's DAX index rose 1.4 percent, and France's CAC-40 rose 1.5 percent. In Asia, Japan's Nikkei stock average fell 0.3 percent.