Stocks Advance as Fed Soothes

NEW YORK ( TheStreet) -- Stocks advanced Wednesday after the Federal Open Market Committee's statement suggested a stabilizing economy and said it would keep rates near zero for an "extended period," as expected.

Aside from a tone that was mildly more upbeat in its discussion of economic conditions than recent releases, the statement from the Federal Reserve's rate-setting arm contained only one key surprise: one of the body's members, Kansas City Fed Chief Thomas Hoenig, dissented from the otherwise unanimous vote, saying he believed the economy had improved enough that expecting interest rates to remain close to zero for an extended period "was no longer warranted."

The Dow Jones Industrial Average closed up 42 points, or 0.4%, at 10,236. The S&P 500 gained 5 points, or 0.5%, to 1098, while the Nasdaq finished 18 points higher, or 0.8%, at 2221.

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"Markets have rallied since the announcement, and honestly, I'm surprised. I really expected markets to trade exactly as they had prior to the announcement," said Mike Shea, a managing partner at Direct Access Partners. "I've heard there's a little bit of prudent short-covering, but largely, I think it's based on the fact that the statement, while almost the same as the last one, does present something of a steadying tone. It suggests things are stablizing.

"I also thinks it's not to be discounted that Apple ( AAPL) announced pricing at the same time," Shea said, pointing to a pop in Apple shares following CEO Steve Jobs' announcement that its new iPad device will be available at the end of March for $500 to $830. Shares added $2.04, or 1%, to close at $207.98.

Shares of AT&T ( T) also gained on the news as Jobs named the communications company as the new device's service partner. AT&T's stock finished up by 29 cents, or 1.1%, at $25.62.

Shares of ( AMZN), maker of the popular Kindle eReader and purported iPad competitor, also ended the day higher, adding $3.27, or 2.7%, at $122.75.

After the closing bell, telecommunications company Qualcomm ( QCOM) topped analysts' profit expectations but slightly missed sales estimates and issued disappointing guidance. Shares closed 0.6% at $47.20 but were down by 7.5% in after-hours trading.

Dow component Caterpillar ( CAT) delivered 2010 earnings guidance that disappointed investors. Shares of the manufacturing bellwether were tumbling by more than 6% Wednesday afternoon. Earlier, Caterpillar said its fourth-quarter results topped forecasts . Sales, however, missed estimates, falling 39%, and guidance underwhelmed. The stock, which was the Dow's worst performer, closed down 4.3% at $53.44.

Fellow blue-chip Boeing ( BA) beat Street views but guided lower than many analysts were anticipating . It led all advancers on the Dow, as shares closed higher by $4.22, or 7.3%, at $61.93.

General Dynamics ( GD) reported largely flat sales and earnings for the fourth quarter, while Piper Jaffray ( PJC) swung to a bigger-than-expected profit of 63 cents a share. The stock shed 2.2%, to close at $67.23.

In the energy space, ConocoPhillips ( COP), the nation's third biggest oil company, and Hess ( HES) beat consensus profit estimates, while refiner Valero Energy ( VLO) reported a slimmer-than-anticipated loss in the most recently completed quarter.

Citigroup ( C), Bank of America ( BAC) and Ford ( F) were the most heavily traded shares on the New York Stock Exchange, which was showing listed volume of over 5.3 billion.

Elsewhere, Toyota ( TM) said it plans to suspend sales on eight popular car models because of sticking gas pedals. Toyota shares fell 8.1%, to close at $79.77. That news helped Ford shares, which rose 36 cents to $11.55.

During oft-heated testimony, Treasury Secretary Timothy Geithner defended the bailout of American International Group ( AIG) before the House Oversight Committee this morning.

The Census Bureau said sales for new homes dipped to a nine-month low last month. New-home sales fell to a seasonally adjusted annual rate of 342,000, down from an upwardly revised 370,000 in November. The pace was far less brisk than economists had expected, as the consensus had forecast a rise to 366,000 from 355,000.

Mortgage applications also tumbled 11% last week, according to the Mortgage Bankers Association. The group's index read 513 for the week ended Jan. 22, down from 575.9 the prior week.

The Energy Information Administration said crude inventory levels fell by 3.9 million barrels for the week ended Jan. 22. Analysts polled by Platts were anticipating a rise of 2 million barrels in crude oil stockpiles. Gasoline supplies, however, rose by 2 million barrels, while distillate inventory levels grew by 400,000 barrels. Forecasts called for a 1.7 million barrel build in gasoline stocks and a 1.8 million barrel draw down in distillates.

Late Tuesday, the American Petroleum Institute released industry inventory levels showing a drop in crude oil stockpiles of 2.2 million barrels.

Crude oil for March delivery shed $1.04, or 1.4%, to settle at $73.67 a barrel. The most actively traded February gold contract lost $13.80, or 1.3%, to finish at $1,084.50 an ounce.

The U.S. dollar strengthened against a basket of currencies, with the dollar index gaining nearly 0.3%.

The benchmark 10-year Treasury note weakened 8/32, pushing the yield higher to 3.650%.

Quincy Krosby, chief market strategist for Prudential Financial, said the market has been "pretty calm, when all is said and done." She noted that many are awaiting further details in President Obama's first State of the Union address later tonight. Most expect the speech to be heavy on economic recovery topics, touching on tax cuts for small businesses and further aid for the middle class. But investors will be listening closely for more details on White House proposals to limit proprietary trading at large banks. Lingering uncertainty since roiled stocks in the aftermath.

"The market is basically anticipating the president's State of the Union, looking for any more signs on the banking sector or any part of the speech that may affect the market," said Krosby.

-- Written by Melinda Peer, Sung Moss and Scott Eden in New York.