Wall Street bounded higher Wednesday after the Federal Reserve lowered interest rates as expected and said risks to the financial markets from the summer's credit crisis have eased. The Dow Jones industrial average gained more than 130 points on the day.
Stocks zigzagged in the minutes after the Fed's decision as some observers read comments from the central bank as indicating further rate reductions are less likely. However, investors appeared relieved that the Fed's comments about the inflation — a perennial concern — signaled the central bank was able to return to somewhat more parochial worries and focus less about upheaval in the credit markets than when it met last month.
Investors, businesses and consumers alike will be getting cheaper access to cash because of the Fed's quarter-point rate cut, and that likely gave stocks a boost. The fed funds rate now stands at 4.50 percent. Last month, the Fed surprised the market with a larger-than-expected half-point cut in the funds rate.
"A rather stingy Fed suggests that they see an economy that is in pretty good shape," said Bruce McCain, head of the investment strategy team for Key Private Bank.
"They're saying now we can turn back to the issue of inflation and implicit in that is that the economy is getting back on track," he said.
The Dow, which had dipped briefly into negative territory after the decision, rose 137.54, or 1 percent, to 13,930.01.
Broader stock indicators advanced. The Standard & Poor's 500 index rose 18.36, or 1.20 percent, to 1,549.38, and the Nasdaq composite index rose 42.41, or 1.51 percent, to 2,859.12.
The Russell 2000 index of smaller companies rose 11.87, or 1.45 percent, to 828.02.
Treasury bond prices fell after the Fed's decision. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.47 percent from 4.38 percent late Tuesday.
In comments following its two-day meeting on interest rates, central bank policymakers said recent spikes in energy and commodity prices are among the forces that could be adding to inflation pressures and that "the upside risks to inflation roughly balance the downside risks to growth."
The rate cut came after a 9-1 vote, with Kansas City Fed President Thomas Hoenig dissenting, arguing that he preferred no change in the funds rate.
The Fed appeared more upbeat about the health of the economy than it did last month when it said strains in the credit markets threatened to further pinch the housing market and the economy at large.
The Fed said Wednesday that "economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance."
Quincy Krosby, chief investment strategist at The Hartford, said the market decided that the central bank wasn't necessarily ruling out further rate cuts.
"I think that the market finally realized after the initial drop-off that the Fed is saying 'Look, we're going to be data-dependent,'" she said. That would be a return to the Fed's mode of operation before the summer's constriction in the credit markets.
She added that after giving investors the 25 basis point cut most had been expecting, prudence demanded that Fed offer a somewhat cautious statement and address concerns about commodity prices. Oil hit another record Wednesday, while gold rose above $800 an ounce.
"I think that upon analysis of it the market understood that you cannot have oil prices hitting almost $95 a barrel. You have to acknowledge commodity prices."
Oil futures climbed to nearly $95 per barrel for the first time after the government reported an unexpected drop in crude oil inventories for the second week in a row. Light, sweet crude rose $4.15 to settle on the New York Mercantile Exchange at $94.53 — a rise of $10 in a week. Gold prices rose, surpassing $800 for the first time since 1980, while the dollar fell to a fresh low against the euro and gave up ground against other major currencies.
The day's rate cut came after the Commerce Department said the country's gross domestic product grew at an annual rate of 3.9 percent in the third quarter, a faster pace than the 3 percent growth economists had forecast on average.
Another Commerce Department report showed construction spending increased 0.3 percent in September, the best showing in four months. Spending on commercial construction and for government projects made up for weakness in home building.
The Chicago purchasing managers index of manufacturing activity in the Midwest showed a decline, falling to 49.7 for October from 54.2 a month earlier. A reading below 50 signals a contraction in activity. The index is seen as a harbinger of the national Institute for Supply Management report, to be released Thursday.
The broad concerns about economic data and the Fed come as companies continue to report their quarterly results.
Auto parts maker Visteon Corp. narrowed its loss in the third quarter as cost-cutting tied to its restructuring effort helped offset lower revenue. Visteon rose 49 cents, or 8.4 percent, to $6.35.
McKesson Corp. jumped $7.55, or 12.9 percent, to $66.10 after the prescription drug distributor turned in better-than-expected quarterly results and raised its full-year forecast.
In other news, Google Inc. crossed $700 for the first time Wednesday as investors grew optimistic that the Internet search leader will continue to boost profits as it pushes into new markets. Google shares, which rose $12.23 to finish at $707, took less than a month to jump from $600 to $700.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 1.56 billion shares compared with 1.22 billion shares traded Tuesday.