Stocks jump on Fed words

NEW YORK — Stocks soared Tuesday on news that Federal Reserve policy-makers believed their run of interest-rate increases is likely nearing an end, propelling the Dow Jones industrials up nearly 200 points. The report helped offset the effects of oil prices that passed $71 a barrel.

The rally was the stock market's biggest in a year. The Dow Jones industrial average gained 194.99 to close at 11,268.77. The Standard & Poor's 500 index rose 22.32 to 1,307.65. The Nasdaq composite index rose 44.98 to 2,356.14.

That was the biggest jump for all three indexes since April 21 of last year, Bloomberg News reported.

The threat of inflation was evident Tuesday in the continued surge of energy prices as crude oil pushed to a record close of $71.35 on the New York Mercantile Exchange. Gold futures also climbed $4.50 to fresh quarter-century highs at $623.30 an ounce Tuesday, helped by worries about Iran's nuclear intentions and oil prices.

But calmed by past experience, investors appeared to be looking past the galloping price of crude, analysts said.

"We have seen it before, and that's the key. It's not a new level, and we didn't really see demand taper off, we didn't really see economic activity slow down because of it," said Steven Goldman, chief market strategist at Weeden in Greenwich, Conn.

"A year ago we thought $70 would be the death knell for consumers. It wasn't."

Wall Street was already climbing in midafternoon when the Fed released minutes of the Federal Open Market Committee's March 27-28 meeting — Ben Bernanke's first as chairman. They showed most of the panel's members "thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy."

The release of the minutes was just what an interest rate-weary market wanted to hear. The Fed has raised rates 15 times in a row since June 2004, putting the nation's benchmark rate at 4.75 percent.

"When it appears as though the governors of the Federal Reserve believe that the end of the rate increases is near, that's very good news for investors," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors in Albany, N.Y. "A lack of ambiguity from the Federal Reserve is always a little bit of a shocker."

Traders had already gotten some comfort Tuesday from the Labor Department's report that core wholesale inflation, which excludes volatile energy and food prices, rose just 0.1 percent last month.

Overall inflation rose 0.5 percent, the fastest pace in three months, after a 1.4 percent drop in February. However, the core number indicated the effects of higher oil are not making their way throughout the economy.

Any sign of more inflation has sent stock prices down, as fighting inflation has been the Fed's chief concern. However, inflation has been under control amid economic growth.

With some reassurance from the Fed, investors are likely to focus more on earnings this week and next.

If earnings results show companies managed to weather higher prices for energy, Wall Street could have the incentive to continue a rally started in March but put on hold in recent weeks.

At the same time, the Fed minutes showed policy-makers are not giving up their inflation watch.

"Members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance," the minutes stated.

Microsoft, one of the 30 Dow stocks, advanced 38 cents to close at $27.22. Boeing, also a Dow stock, gained 95 cents to another all-time high at $83.30.