New York: US stocks rallied to nearly a five-month high on Tuesday on growing conviction that central banks will do even more to bolster struggling economies worldwide.
The Bank of Japan lit the fuse overnight when it unexpectedly cut rates closer to zero and said it would pour money into the markets through asset purchases. This move came as markets increasingly believe the US Federal Reserve will stimulate the world’s largest economy in a similar fashion.
“The thinking today is that the printing of money is going to take place,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
“The short-term impact of that is to drive asset prices higher. We’ve seen it almost across the board in commodities.”
The likelihood of quantitative easing in the United States hit the greenback and lifted commodity prices, while resource stocks drove the S&P 500 through the 1,150 resistance level.
The US services sector also rose more than expected, increasing to 53.2 in September from 51.5 in August. Anything above 50 indicates growth.
Crude oil hit a five-month peak near $83 a barrel and gold hit another record high at $1,341.20 an ounce. The materials sector led the S&P 500, gaining 2.8%, with mining company Freeport-McMoRan Copper & Gold jumping 4.6% to $91.21.
Growing expectations of another round of quantitative easing from the Fed have fueled enthusiasm for equities of late. A top Fed official said in an interview published on Tuesday that the central bank should do “much more” monetary easing to spur a sluggish economic recovery.
If the 1,150 level holds, the next resistance level for the S&P 500 is seen around 1,170 to 1,175.
“It started off being a round number and now it becomes more significant,” said Frank Cappelleri, technical market analyst and trader at Instinet in New York.
“Over the past few months, the market has seemed to respect support and resistance more than before. So when one of those levels is taken out, it seems to hold more significance than it has in the past.”
The Dow Jones industrial average gained 193.45 points, or 1.80%, to 10,944.72. The Standard & Poor’s 500 Index rose 23.72 points, or 2.09%, to 1,160.75. The Nasdaq Composite Index jumped 55.31 points, or 2.36%, to 2,399.83.
The Bank of Japan set the positive tone early on after it cut its overnight rate target to virtually zero and pledged to buy ¥5 trillion ($60 billion) worth of assets in a fresh dose of economic stimulus.
Additionally, Australia’s central bank left interest rates steady for a fifth month, thwarting expectations of a hike.
Wall Street added to gains after the Institute for Supply Management’s index showed the pace of growth in the US services sector accelerated more quickly than forecast in September, while hiring also picked up.
Industrial shares also ranked among the day’s winners, with Dow components Boeing Co up 3.4% at $68.60, and Caterpillar Inc climbing 2.8% to $79.40.
Elsewhere, Walgreen Co gained 2.6% to $33.98 after the drugstore chain posted an unexpected increase in September same-store sales.
About 8.77 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, off from last year’s estimated daily average of 9.65 billion.
Advancing stocks outnumbered declining ones on both the NYSE and the Nasdaq by a ratio of slightly more than 4 to 1.
Japan’s Nikkei was up 1.5% after the Bank of Japan’s decision. The Shanghai Composite was closed for the Golden Week holiday. European markets also closed higher as investors there reacted to better-than-expected figures on the Euro zone’s services sector. But fears about Ireland’s debt crisis continue to linger.
US gold futures surged over $23 an ounce, rising to a new all-time high. Oil for November delivery increased to $82.82 a barrel. The yield on the 10-year bond decreased to 2.47% from 2.48%.