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Markets Finish at Multiyear Highs

NEW YORK ( TheStreet) -- Stocks rallied across the board Wednesday as encouraging earnings, deals news and positive sentiment drove market momentum.

The Dow Jones Industrial Average surged 61 points, or 0.5%, to close at 12,288. The S&P 500 gained 8 points, or 0.6%, to finish at 1,336, more than double its intra-day low of 666 in March 2009. The Nasdaq soared 21 points, or 0.8%, to 2,826.

Financials and energy stocks were among the session's top gainers, with JPMorgan Chase (JPM) topping the Dow while Verizon (VZ), Microsoft (MSFT) and AT&T (T) were the biggest laggards.

The Federal Reserve raised its GDP projections slightly and lowered its forecasts for both the unemployment rate and inflation moderately, according to minutes of the Fed's latest policy meeting. The unemployment rate is now projected to drop to 8.8% to 9% by the end of 2011, down by a tenth from its November projection of 8.9% to 9.1%.

Despite the Street's concerns about inflation, the Fed still has a subdued outlook for inflation, with personal core expenditures inflation, or PCE inflation, forecast to rise to the Fed's mandate of 2% only in 2013. The Fed reduced its forecast for core PCE inflation, which excludes food and energy prices, to 1 % to 1.3% in 2011, down from its earlier projection of 0.9% to 1.6%.

Minutes of the meeting also showed some members were unsure on the impact of quantitative easing on the economy but felt that it would not be appropriate to make changes to the policy.

John Canally, economist at LPL Financial, said that based on the Fed's forecasts for inflation and unemployment, the central bank was unlikely to raise rates anytime soon. "The mid-point of their forecast for core inflation in 2012 is 1.25%. That is still lower than the lower end of the Fed's comfort zone of 1.5%. Again the unemployment rate for 2012 is 7.8%. That is still higher than the unemployment rate they consider normal of 6.7%. They are not going to tighten till 2012," said Canally. He, however, said the Fed could resort to other passive tightening measures such as deciding not to go for QE3.

Economic reports were mixed Wednesday. January housing starts jumped 14.6% to a better-than-expected level of 596,000 but building permits fell to a lower level than the market forecast, and industrial production unexpectedly slipped in January, by 0.1%, after surging by 1.2% in December. Market observers said most of the gains in housing starts came from the volatile multi-family units segment.

In other economic news, producer prices rose 0.8% in January , which was mildly higher than the 0.7% uptick that the market had expected, according to The core rate, which excludes volatile food and energy costs, gained 0.5%, compared with the growth of 0.2% that had been expected. In December, producer prices rose 0.9% and the core rate increased 0.2%.
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