Fed Keeps Rally Alive

Giving the market a lift were remarks from Fed Vice Chairman Donald Kohn, who said policymakers need to be "flexible and pragmatic" in order to deal with the uncertainty in the economy and financial arena.

He offered that the central bank should be "nimble" with its response to developments in the markets and not be paralyzed by fears of creating a "moral hazard," thus providing hope for those who want to see the Fed reduce rates again. The fed funds target rate has been lowered to 4.50% from 5.25% in recent weeks.

Many traders want additional easing in order to help the market, specifically the financials, navigate through the subprime mortgage mess that has forced billions of dollars in writedowns by Wall Street banks and is likely to lead to more.

"Kohn is rekindling hopes the Fed will cut at the December meeting," said Peter Cardillo, chief market economist with Avalon Partners. "The market is now beginning to focus on the fact that most of the dangers that have emerged over the past few months may be behind us."

Cardillo warned that optimism over a Fed rate reduction next month may be overdone "unless we see job growth erode, which would come in the form of a negative number in nonfarm payrolls data."

Among subsector indices trading higher, the Philadelphia Housing Sector Index added 4.9%, the S&P Retail Index rose 4.6%, the NYSE Financial Sector Index finished up 4.2%, and the Philadelphia Semiconductor Sector Index climbed 2.4%.

Michael Sheldon, chief market strategist with Spencer Clarke LLC, said that there is short-term buying interest in beaten-down areas of the market, and that a second winning session in a row should add to near-term positive sentiment.

"However, continued worries in terms of falling consumer confidence, weak housing data, high energy and food prices, liquidity concerns among financials, tightening credit conditions in the economy, along with poor market internals are likely to limit the stock market's advance in the days ahead," he said.

Kohn's comments arrived on the same day as Fed's regional survey, known as the beige book. The anecdotal report on economic conditions in 12 districts around the country will be considered at the Federal Open Market Committee's Dec. 11 policy meeting.