Dow Jones soars 429 pts on Fed byte

The Federal Reserve pledged to keep its key interest rate at its record low of nearly zero through the middle of 2013. The central bank also said that it has discussed 8220;the range of policy tools8221; it can use to spur the economy.

Bob Doll,chief equity strategist at BlackRock,said the Fed8217;s decision to hold interest rates at a very low rate for two years is 8220;unprecedented8221; and called it a kind of 8220;backdoor quantitative easing.8221; In June,the central bank finished a second round of buying Treasury securities,also known as quantitative easing,in hopes of boosting the economy.

8220;Markets are going to do what they would have done if the Fed went out and bought securities,8221; Doll said. He said he expects investors will return to stocks after the broad sell-off of the least few weeks.

He expects stocks to continue to rally because a slow-growing U.S. economy won8217;t harm corporate profits. As a whole,the companies in the Standard amp; Poor8217;s 500 index reap more than half their revenue overseas. What8217;s more,companies have already cut costs significantly,have hoarded cash and squeezed more production out of workers. Even as the U.S. economy has slowed,the Samp;P 500 as a whole was expected to earn record profits this year.

8220;Corporate America has demonstrated that it can generate good growth and profits despite a weaker U.S. economy,8221; Doll said.

The Dow rose 429.92 points,or 4 percent,to 11,239.77. On Monday,the Dow plunged 634.76 points in the first trading day after Standard amp; Poor8217;s downgraded the U.S. one notch from its top AAA credit rating to AA.

The Samp;P 500 rose 53.07,or 4.7 percent,to 1,172.53. The Nasdaq composite index rose 124.83,or 5.3 percent,to 2,482.52.

The rally spread to overseas markets early Tuesday. Japan8217;s benchmark Nikkei 225 index was up about 1.4 percent,while Hong Kong8217;s Hang Seng index added 3 percent. Australia8217;s benchmark Samp;P/ASX200 index rose 3 percent.

At first,U.S. markets reacted much differently to the Fed8217;s statement. Stocks fell as much as 205 points after the Fed8217;s 2:15 p.m. EDT 1915 GMT statement.

Gold rate surged more than 50 per ounce to 1,774. The yield on the 10-year Treasury note briefly touched a record low of 2.03 percent,after closing Monday at 2.34 percent.

An hour later with less than 45 minutes until the market closed,stocks rallied,gold retreated off its high and the yield on the 10-year Treasury note quickly headed higher. It was at 2.26 percent late Tuesday. A bond8217;s yield drops when its price rises.

Howard Silverblatt,senior index analyst at Samp;P,called it the 8220;Big Ben turnaround,8221; referring to Fed chair Ben Bernanke.

The industries that did best on Tuesday were the ones that fell the most on Monday. Financial stocks in the Samp;P 500 rose 8.2 percent after falling 10 percent Monday. Materials companies,which rely on a stronger global economy for their profits,rose 5.9 percent.

Only seven of the 500 stocks in the index had declines. All 30 stocks in the Dow rose. Bank of America Corp.,which was down more than 20 percent Monday,rose 16.7 percent,the most of any stock in the Dow. Aluminum maker Alcoa Inc. was up 8 percent.

Technology company MEMC Electronic Materials Inc. led the Samp;P 500 higher,gaining 19.1 percent.

Boosting the stock market isn8217;t one of the Fed8217;s jobs,but that hasn8217;t stopped investors from parsing every word of the statements made by the Fed and Bernanke.

The Fed8217;s mandate is to keep prices stable and promote low unemployment,not boost stocks. But a stock dive after Fed comments has happened before. On June 3,the stock market suffered a late-day dive when Bernanke spoke at a conference. Investors said they were looking for a hint of new plans to spur economic growth. When that didn8217;t come,all three major indexes sank.

After Bernanke outlined the plan for a second round of quantitative easing in August 2010,the Samp;P 500 index gained 28 percent over eight months. Investors pointed to that rebound as evidence that quantitative easing worked _ and so did Bernanke. This sentiment led some people to believe that if stocks fall too far,the Fed would come to the rescue.

The Fed said in its statement Tuesday that it expects 8220;a somewhat slower pace of recovery over coming quarters.8221; It had said as recently as six weeks ago that temporary factors,such as the high price of gasoline this spring and Japan8217;s March earthquake and tsunami,would end and the economy would grow at a faster pace in the second half of the year. But on Tuesday,the Fed said those factors were only part of the reason that the economy grew at its slowest pace in the first half of 2011 since the recession ended in June 2009. It now expects slower growth over the next two years.

Economists now believe there is a greater chance of a U.S. recession because the economy grew much more slowly in the first half of 2011 than previously thought. The manufacturing and services industries barely grew in July. The unemployment rate remains above 9 percent,despite the 154,000 jobs added in the private sector in July.

Economies across the globe are also struggling.

Worries are growing that Spain or Italy could become the next European country to be unable to repay its debt. High inflation in less-developed countries,which have been the world8217;s main economic engine through the recovery,is another concern. China8217;s inflation rose to a 37-month high in July.

Those economic concerns have pulled attention from stronger corporate earnings this spring.

Dish Network Corp. reported Tuesday that its second-quarter net income rose 30 percent to 334.8 million on stronger revenue. Among the 441 companies in the Samp;P 500 index that have already reported their second-quarter earnings,profits are up 12 percent from a year ago.

The housing market,though,remains weak. Homebuilder Beazer Homes USA Inc. said its loss widened last quarter after it closed on fewer homes.

Consolidated trading volume was heavy Tuesday,at 9.2 billion shares. Nearly 12 stocks rose for every one that fell on the New York Stock Exchange.