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US stocks rise as regulator lifts caps on Fannie, Freddie; Bernanke comments please investors

US stocks rise as regulator lifts caps on Fannie, Freddie; Bernanke comments please investors

Stocks advanced Wednesday after regulators lifted the caps on the investment portfolios for government-sponsored mortgage finance companies Fannie Mae and Freddie Mac, a move expected to increase liquidity in the mortgage industry.
Wall Street also got a boost from Federal Reserve Chairman Ben Bernanke, who indicated the central bank remains open to further rate cuts to stimulate the economy.
The announcement by the government regulator for Fannie Mae and Freddie Mac pleased investors because it offered a chance for an easing of the extremely tight mortgage market that has been battered by the subprime loan crisis.
Word of easing liquidity concerns followed Bernanke's comments before lawmakers on Capitol Hill. His remarks come as the dollar plunged to a record low against the 15-nation euro, which sent oil and gold further into record high territory and raised the prospect of accelerating inflation.
Investors have been hoping for some kind of indication as to whether the Fed is more concerned about the sagging economy or the risk of inflation.
Harry Clark, president of Clark Capital Management in Philadelphia, said Bernanke's initial remarks indicate he is "finally getting it" and continuing to focus on boosting the economy. The Fed, widely expected to make a half-point cut in interest rates, will meet again March 18.
"We all know inflation is back to a degree but they've all said that inflation won't keep the Fed from lowering rates further," Clark said.
In midday trading, the Dow Jones industrials rose 46.65, or 0.37 percent, to 12,731.57.
Broader stock indexes also rose. The Standard & Poor's 500 index advanced 3.62, or 0.26 percent, to 1,384.91, and the Nasdaq composite index rose 12.52, or 0.53 percent, to 2,357.51.
The euro climbed to a record high of $1.5057 as sentiment increased that the Fed would continue its campaign of cutting rates.
The dollar's continued slide drove more money into commodities _ especially into oil and gold.
Oil prices broke through a new intraday high of $102 a barrel in overnight trading before retreating. Light, sweet crude fell 38 cents to $100.50 a barrel on the New York Mercantile Exchange. Meanwhile, gold futures set a new high of $961.30 an ounce.
Bond prices fell. The yield on the benchmark 10-year note, which moves opposite its price, rose to 3.88 percent from 3.86 percent late Tuesday.
The moves followed a government report showing business investment in durable goods weakened more than forecast at the start of the year, playing into the nervousness about economic slowing. The Commerce Department reported durable goods orders dropped 5.3 percent in January, exceeding forecasts.
There was more bad news Wednesday about the housing slump. The Commerce Department reported that new home sales fell in January for a third straight month, pushing activity down to the slowest pace in nearly 13 years.
Beyond economic data, investors kept close watch over Bernanke's comments. Clark said investors appeared pleased by a sense that the Fed will continue to work to right the economy before taking any sizable steps to tamp down inflation. He said that the Fed hasn't changed its forecast that inflation will begin to moderate late this year and next year. He said a slowdown in the economy that avoids recession could create a moderate drop in demand and help ease pressure from rising prices.
"If the economy goes down the drain with rising prices, that's stagflation," he said. "Rising prices aren't a big deal if everyone is employed and the economy is growing."
The notion of some easing in the weakened mortgage sector pleased investors. Fannie Mae shares rose 83 cents, or 3.1 percent, to $27.80, while Freddie Mac shares advanced 35 cents to $25.56.


Updated : 2021-04-16 19:03 GMT+08:00