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Stocks Soar on Fed Stimulus Hopes


NEW YORK (TheStreet) -- The U.S. benchmark indices settled sharply higher Monday as investors clung to the hope of further economic stimulus following Federal Reserve chairman Ben Bernanke's warning about long-term unemployment.

The Dow Jones Industrial Average closed up 160.9 points, or 1.2%, at 13,242. All companies on the index rose except Verizon Communications (VZ), whose shares fell after Citigroup lowered its earnings estimates on the company. Dow leaders included Pfizer (PFE), American Express (AXP) and Merck (MRK).

The S&P 500 gained 19.4 points, or 1.4%, at 1417, on Monday hitting its highest level since 2008. The Nasdaq added 54.7 points, or 1.8%, at 3123, settling above 3100 for the first time since November 2000.

Bernanke said that "continued accommodative policy" is needed to support the economy's recovery.

"If progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one," he explained.

Stock futures popped following his comments, suggesting that some investors believe further stimulus is on the horizon. However Dan Greenhaus, chief global strategist with BTIG, said that the central bank would be more likely to extend its current Operation Twist program than start a new purchase program.

"The distinction may seem academic to some but to the Chairman, the choice of 'continued [accommodative policy]' as opposed to 'additional' is quite important," he explained.

The week is fairly full in terms of economic reports, with investors getting data on the housing market and a look at consumer confidence and personal spending levels later in the week. On Monday, the National Association of Realtors reported that pending home sales fell 0.5% in February, when economists were expecting a rise to 1%, according to Thomson Reuters. However, sales are still solidly higher than a year ago and economists are expecting improvements in buying as the spring season draws near.

Also, the Chicago Federal Reserve reported that its national activity index, which weighs production, income, employment, personal consumption and more, fell to a level of -0.09 in February, from 0.33 in January, which was its highest level since May 2010.

A manufacturing survey from the Dallas Federal Reserve held steady in March, suggesting that growth in Texas factory activity is continuing at the same pace as in February. New orders stagnated but expectations of manufacturers on future business conditions were more optimistic.

Stocks were coming off their worst week of the year, with the S&P 500 and Dow losing 0.5% and 1.2%, respectively, last week. However, the market is still on track to post its best first quarter in 14 years. With one week left to the quarter, the S&P 500 is up 11.1%, the Dow is up 7.1%, and the Nasdaq is up 17.8% year to date.

In Europe, a report showed that business confidence in Germany rose unexpectedly in March. The Ifo institute's business climate index rose to 109.8 from a revised 109.7 when economists had expected the level to stay unchanged.

On Monday, Germany's DAX finished up 1.2% while London's FTSE closed up 0.8%. The Hong Kong Hang Seng closed flat while the Nikkei Average in Japan edged up 0.07% overnight.

In corporate news, Yahoo! (YHOO) appointed three directors to its board, setting up for a proxy fight with Third Point LLC, one of its largest shareholders. Hedge fund Third Point, which owns a 5.8% stake in Yahoo!, last week launched a bid to gain four seats on the Internet company's board. Shares were up 1% to $15.54.

AOL (AOL) hired Evercore Partners to find a buyer for its more than 800 patents and explore other strategic options, Bloomberg reported, citing people with knowledge of the situation. Evercore is trying to help AOL wring value from a patent portfolio, which some estimate can yield more than $1 billion in licensing income. Private-equity firms, including Providence Equity Partners, TPG Capital and Silver Lake, have approached AOL about taking the company private, yet the overtures haven't resulted in a deal, said the people. Shares were up 4.4% to $19.30.

Amgen (AMGN) said a Phase 1b clinical study of its experimental AMG 145 drug showed that multiple doses of the treatment reduced bad cholesterol by as much as 81% in patients already taking statins, presenting it as a possible threat to a similar drug in development at Regeneron Pharmaceuticals (REGN). Amgen shares were rising 1.3% to $67.52.

Roche, the Swiss drug giant, extended its $5.7 billion cash bid for Illumina (ILMN), the U.S. gene-sequencing company, for a second time. Roche is offering $44.50 a share for Illumina. The acceptance period was extended to April 20. Illumina continues to reject the bid. Illumina shares were up 0.5% to $50.69.

JPMorgan Chase's (JPM) chief executive officer of the Asia Pacific region, Gaby Abdelnour, is stepping down to pursue personal interests. Shares added 2.2% to $46.17.

May oil futures closed up 16 cents to $107.03. In other commodities, April gold futures finished up $23.20 at $1,685.60 an ounce.

The dollar index turned 0.6% lower following Bernanke's speech. The benchmark 10-year Treasury was down 2/32 pushing the yield to 2.245%.

-- Written by Chao Deng and Andrea Tse in New York.

>To contact the writer of this article, click here: Chao Deng.

>To follow the writer on Twitter, go to: @chao_deng

>To submit a news tip, send an email to: tips@thestreet.com.

Copyright 2011 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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