Stocks Rise on Fed Stimulus Hopes

NEW YORK (TheStreet) -- The major U.S. equity indices closed higher Tuesday amid optimism about the likelihood of a pledge for additional stimulus arriving from the Federal Reserve later this week.

The market shrugged off a warning from Moody's about a potential downgrade of the U.S. government's credit rating if legislators are unable to hammer out a budget deal to avoid the so-called fiscal cliff.

Apple (AAPL), however, was a headwind as the stock fell for a second consecutive session ahead of its big media event on Wednesday. The company is widely expected to unveil the iPhone 5, and the stock hit a new all-time high of $683.29 on Monday before steadily pulling back ahead of the news. Shares finished down 0.32% at $660.59.

The Dow Jones Industrial Average rose 69 points, or 0.52%, to close at 13,323, touching its highest levels since December 2007 at an intraday high of 13,354.34.

The blue-chip index, which began the day up more than 9% so far this year, has now risen in six of the past nine sessions.

Winners far outpaced losers within the Dow, 24 to 6. The biggest percentage gainers were Alcoa (AA), Bank of America (BAC), Caterpillar (CAT), Hewlett-Packard (HPQ), and JPMorgan Chase (JPM).

JPMorgan CEO Jamie Dimon spoke at an investor conference in New York Tuesday afternoon and reportedly said he believes the bank could weather a worst-case scenario in Europe. The stock climbed 2.2% on Tuesday.

The most prominent Dow decliners were American Express (AXP), Home Depot (HD), and Kraft Foods (KFT).

The S&P 500 tacked on 4 points, or 0.31%, to finish at 1434. The Nasdaq, which sustained a 1% loss on Monday, rose less than a point, or 0.02%, to settle at 3104.53.

Energy, financials and conglomerates were the strongest sectors in the broad market. Only utilities closed in the read

Volume was light again, totaling just 3.49 billion on the New York Stock Exchange and 1.58 billion in the Nasdaq.

The Fed kicks off a two-day policy meeting on Wednesday with the end result widely expected to be the announcement of another round of quantitative easing, or QE3. In addition to launching another asset-purchase program, the central bank may extend its promise to keep interest rates at current historic lows from late 2014 into 2015.

Aside from the hype ahead of the Fed meeting, the latest batch of economic data showed some promise. The National Federation of Independent Business said Tuesday that its Small Business Optimism Index rose to 92.9 in August from 91.2 in July, up for the first time in four months, driven by a big increase in the job creation sub-index.

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