08/09/11 by LGR Financial News Staff

After a volatile trading session, the Dow Jones industrial average closed up nearly 430 points Tuesday, on news the Federal Reserve has pledged to keep short-term interest rates near zero for at least another two years.

In the wake of the economy’s fading pace and the stock market’s recent plunge, many analysts had been expected the Fed would show that it was willing to provide more financial support.  And In a contentious afternoon meeting, the Fed did just that when it signaled that the central bank expects to keep short-term interest rates low for an extended specific period — “at least through mid-2013.”

That announcement appears to have energized some investors, who looking were for any scrap of good news after seeing the global decline that hit the markets following the contentious US debt ceiling negotiations and Standard & Poor’s downgrading of the U.S. credit rating late last week.

The Dow closed up 429.92 points, or 4%, to 11,239.77, its biggest gain of the year, after having fallen 635 points in reaction to that downgrading at closing bell yesterday.

The Standard & Poor’s 500 Index also soared 53.07 points, or 4.8%, to 1,172.53, as did the Nasdaq composite, which jumped 124.83 points, or 5.3%, to 2,482.52.

The price on the benchmark 10-year U.S. Treasury rose following the Fed’s statement, pushing the yield down to 2.28% from 2.34% late Monday.

The U.S. Treasury Department plans to sell $72 billion in bonds this week. Its first auction was held Tuesday, during which the government sold $32 billion in 3-year notes. The bid-to-cover ratio, a measure of demand, came in roughly in line with other recent 3-year note auctions — an indication that investors are not afraid to stash their cash in Treasuries, even with the warning from S&P

However, even with today’s rally, the Dow is still down 2.9% year to date, the S&P 500 is down 6.8% and Nasdaq is off 6.4%. Productivity of U.S. workers also slipped 0.3% during the second quarter, after falling 0.6% the prior quarter. Labor costs rose by 2.2%.

Reflecting the extreme continued investor anxiety caused by those figures, gold futures, settled at $29.80, or 1.7%, higher at a record $1,743.00 a troy ounce on the Comex division of the New York Mercantile Exchange.  Earlier, gold prices hit a record intraday high of $1,782.50 an ounce. Crude-oil futures also slid below $80 a barrel for the first time in nearly 10 months to settle at $79.30 a barrel, while the U.S. dollar lost ground against both the euro and the yen.

Related articles

• Federal Reserve to keep rates low through 2013 (cbc.ca)