Market Rises on Fed Vote; Bond Yields Steady

The Federal Reserve took a pass Wednesday, and the stock market was happy enough with that--at least for now.

But Treasury bond yields ended mostly unchanged, reflecting that bond traders have been betting in recent weeks that the central bank would take at least a short break from raising interest rates.

On Wall Street, stocks closed broadly higher after the Fed voted to leave its key short-term rate alone, at 6.5%.

The Nasdaq composite ended up 81.38 points, or 2.1%, at 3,940.34--which was about where it was when the Fed announced its decision at 11:15 a.m. Pacific time.

Nasdaq initially traded lower, then rallied as high as 3,974 before falling back.

The Dow industrials ended with a gain of 23.33 points at 10,527.79, falling from about 10,590 at the time of the Fed announcement.

But the market’s breadth was strong, with winners topping losers by 18 to 11 on the New York Stock Exchange and by 24 to 16 on Nasdaq, in active trading.

Some analysts argued that the market’s rally may be short-lived, because the Fed left the door open for more rate hikes.

“If they had gone for an increase [Wednesday], that probably would have been it for the year,” said Milton Ezrati, economist at Lord,Abbett & Co. “But this has set the market up to worry right through August,” when the Fed holds its next meeting on rates.

In the Treasury bond market, the fact that yields on both short- and long-term securities mostly held steady Wednesday was viewed as a sign that traders see little reason to bet on lower rates soon. The 10-year T-note yield ended at 6.11% Wednesday, up from 6.09% Tuesday. The one-year T-bill ended at 6.13%, versus 6.15% Tuesday.

Treasury yields may have been held back by action elsewhere in the market: German phone giant Deutsche Telekom issued a record $14.57 billion in corporate bonds Wednesday, as it builds a war chest to expand its mobile phone unit and other businesses.

Many analysts figure that both the stock and bond markets will be hostage to economic data over the next two months: If the economy continues to slow, investors may assume the Fed’s yearlong rate campaign is over. But fresh strength in the economy could boost bond yields and create new troubles for stocks.

Among Wednesday’s highlights:

* Big-name tech stocks seemed to get the biggest boost from the Fed’s decision to stand pat. Adobe Systems gained $6.75 to $124.81, Vitesse Semiconductor rose $2.56 to $79.13, Apple jumped $2.69 to $54.44 and IBM added $4.03 to $113.78.

Biotech stocks also resumed rallying. Genentech rose $5.69 to $157, Millennium Pharmaceuticals surged $16.25 to $134 and Myriad Genetics gained $12.50 to $141.88.

* Financial stocks, which would be expected to rally if investors thought that interest rates had peaked for good, were mixed. J.P. Morgan fell $2.03 to $116.73 and Bank of America fell $1.59 to $45.41, but Goldman Sachs gained $1.56 to $89.88 and Downey Financial rose $1 to $30.13.

* CSX jumped $2.44 to $23.02 in the wake of corporate raider Carl Icahn’s decision to pursue buying a 15% stake in the rail giant.

* Energy stocks were mixed as oil and natural gas prices pulled back, while gold-mining stocks rose as near-term gold futures gained $6.90 to $292.50 an ounce.

Market Roundup, C11-C12