Stocks Soar More Than 2%, Finish at Session Highs


NEW YORK ( TheStreet) -- The major U.S. equity indices finished Wednesday's powerful 2%-plus rally on a high note as investors flooded into stocks on the hope that the Federal Reserve could soon signal its openness to another round of quantitative easing.

The major U.S. equity indices were also getting a lift from some short-covering following the deep declines seen since the start of May and a better than expected GDP report from Australia, according to Robert Pavlik, chief market strategist at Banyan Partners.

The Dow Jones Industrial Average gained 287 points, or 2.4%, to close at 12,415. The move puts the blue-chip index back in the black for the year (up 1.6%) after it went negative during last Friday's steep selloff following the weak May jobs report.

The S&P 500 jumped nearly 30 points, oe 2.3%, to settle at 1315. The Nasdaq rose 67 points, or 2.4%, to close at 2845.

All three indexes finished at their session highs. The S&P 500 is now up 4.6% in 2012, and the Nasdaq has gained 9.2%.

Fed Chairman Ben Bernanke is slated to appear on Capitol Hill Thursday, and Wall Street is betting that he hints that the central bank is amenable to providing additional monetary stimulus with Operation Twist slated to end later this month.

Announced in September 2011, Operation Twist involves selling short-term bonds and buying long-term ones. The current $400 billion program expires this month but Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday an extension was an option.

Pavlik said there could be more upside ahead in the short term but also noted that headline risk from Europe remains a constant worry, saying he would be "extremely cautious heading into next week" with the Greek elections looming toward the end of the month.

"While the recent talk from financial leaders has been in-line with what the Street wants to hear as it relates to 'what they'll to do' to safeguard the banks and financial systems in Europe; keep in mind that nothing other than an agreement to keep talking and to try and formulate a plan has actually been decided upon," he wrote in emailed commentary on Wednesday. "What this means is, we still have no concrete understanding what the finance ministers will do or if they'll be ready if the debt crisis worsens."

Meantime, the Federal Reserve also struck a generally upbeat tone with the release of its Beige Book report on economic conditions Wednesday afternoon, saying ""overall economic activity expanded at a moderate pace during the reporting period from early April to late May."

RDQ Economics viewed the statement as a "slight upgrade" from the language used in the previous report.

The latest report found that manufacturing activity continued to increase in most districts and that retail spending was flat to modestly positive.

"Although the Beige Book is not a significant input into the Fed's policy debate compared to official data releases and the FOMC forecasts for growth, inflation, and unemployment, this report does not paint a picture of an economy that has faltered in recent weeks," wrote RDQ.

All 30 Dow components finished Wednesday in positive territory, with Bank of America ( BAC), United Technologies ( UTX) and Caterpillar ( CAT) leading the gains.

Bank of America's stock was the largest gainer in the blue-chip index, rising nearly 8% to close out the day at $7.64.

Breadth within the broad market was overwhelmingly positive with winners running ahead of losers by a more than 6-to-1 ratio on the New York Stock Exchange and a 4-to-1 ratio on the Nasdaq.

Steve Ayer, managing director and partner at HighTower's Strata Wealth Management, also expressed some skepticism that the market will be able to hold the gains very long.

"I think the rally will be short-lived until we get more clarity on Greece," he said.

The European Central Bank said Wednesday that it was keeping its benchmark interest rate at 1%, though some members seemed to want a rate cut. The markets continued to look for clues that the central bank would show an openness to lowering rates by July in the face of growing signs of recession on the continent and Spain's troubled banking system.

After the meeting, ECB President Mario Draghi indicated that short-term liquidity measures would continue but withheld clues on more aggressive plans to tackle the debt crisis.

"Today, we have decided to continue conducting our main refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until ... January," Draghi said at a press briefing. "We monitor all developments closely and we stand ready to act," Draghi said in Frankfurt.

In reaction to Draghi's comments, Day said that "this is not a magic wand that will solve debt problems in Europe but easy money buys time and helps the stock market."

The FTSE in London closed up 2.4% and the DAX in Germany gained 2.2%.

In other economic news, U.S. nonfarm productivity fell at a greater-than-expected 0.9% annual rate in the first quarter, a bigger drop than the 0.5% the government initially reported. Analysts surveyed by Reuters had expected productivity to decline at a 0.7% rate in the quarter.

Unit labor costs were revised to a mere 1.3% rise from a 2% increase.

The Hang Seng Index in Hong Kong closed up 1.4% and the Nikkei in Japan added 1.8%.

The July crude oil contract settled up 80 cents at $85.09, while August gold futures gained $4.30 to settle at $1621.20 after running as high as $1642.40 during the session.

The benchmark 10-year Treasury fell 25/32, raising the yield to 1.664%. The greenback was a big mover, down 0.76%, according to the dollar index, which measures the buck against a basket of six other currencies.

In corporate news, it was a rough day for mattress makers as shares of Tempur-Pedic ( TPX) lost nearly half of their value after the company gave a weak outlook because of slowing sales in North America. Tempur-Pedic now sees earnings of $2.70 a share on sales of $1.43 billion for the full year, well below the consensus view for a profit of $3.75 a share on sales of $1.61 billion. The shares plunged nearly 49%.

In addition, Mattress Firm Holding ( MFRM) gave a lackluster outlook for its fiscal second quarter, sending its stock down more than 20%.

Groupon ( GRPN) shares popped nearly 9% after Stifel Nicolaus upgraded the online coupons site to hold from sell.

A report that Ancestry.com ( ACOM) is weighing a sale sent the company's stock nearly 11% higher.

Diageo ( DEO) , the biggest drinks company in the world, said it plans to invest 1 billion pounds ($1.55 billion) to expand production of Scotch whisky. Shares gained more than 4%.

Home Depot ( HD), the home-improvement retailer, increased its fiscal 2012 share buyback program by $500 million to $4 billion. The company also reaffirmed its fiscal 2012 sales and earnings per share projections -- sales are expected to increase 4.6% this year and earnings are slated at $2.90 a share, an increase of about 17%. Shares rose more than 3%.

Credit card company MasterCard ( MA) announced Tuesday that its board approved a new $1.5 billion share repurchase program. The stock gained 3%.


-- Written by Andrea Tse and Alexandra Zendrian in New York.

>To contact the writer of this article, click here: Andrea Tse.