Stocks rise on rate-cut talk

Wall Street advanced sharply Tuesday as investors interpreted minutes from the Federal Reserve’s last meeting as indicating the central bank was ready to keep cutting interest rates to boost the economy. The Dow Jones industrial average and Standard & Poor’s 500 index reached new highs.

The minutes from the Federal Open Market Committee’s Sept. 18 meeting, when Fed governors voted unanimously for a half-point cut, also showed that officials were concerned that the weakness in the dollar could lead to higher inflation. But the Fed -- signaling it was more willing to intervene -- also said that the economic outlook was uncertain because of the summer’s credit crisis, and that there were still risks to growth that justified lower rates.

The major indexes were little changed just before the minutes came out, then rose sharply. Investors were hoping that the Fed would lean toward future rate cuts; central bankers will meet again Oct. 30-31.

“This adds fuel to the fire that the Fed is going to try and reinvigorate the economy with further cuts, and that’s what they are committed to,” said Richard E. Cripps, chief market strategist for Stifel Nicolaus. “The likelihood of having a second cut either this month or at the December meeting seems greater than before the minutes.”

Further, Federal Reserve Bank of St. Louis President William Poole said during a speech Tuesday that he believed the financial markets were “still fragile” from weakening credit conditions, but that they appeared to be stabilizing. San Francisco Federal Reserve Bank President Janet Yellen said in a speech that the central bank must focus on “how financial market developments are likely to affect employment, output and inflation.”

The Dow rose 120.80 points, or 0.86%, to 14,164.53, eclipsing the previous record close of 14,087.55 reached Oct. 1. The Dow had a new trading high as well, rising to 14,166.97.

The S&P; 500 rose 12.57 points, or 0.81%, to a record close of 1,565.15. It surpassed the previous record close of 1,557.59, reached Friday, and also hit a new trading high of 1,565.26.

The Nasdaq composite index rose 16.54 points, or 0.59%, to 2,803.91. This is the first time the technology-heavy index closed above 2,800 since January 2001. It is lagging the other big indexes because it was severely over-inflated by the dot-com boom, and it isn’t expected to reach its record-high close of 5,048.62 any time soon.

The yield on the 10-year Treasury note -- which moves inversely to its price -- edged up to 4.65% from 4.64% on Friday. The Treasury market was closed Monday for Columbus Day.

Although Wall Street was focused on a possible rate cut, bond investors believed the Fed’s economic outlook was uncertain.

The dollar was generally lower against other major currencies while gold prices rose. Light, sweet crude oil was up $1.24 to $80.26 on the New York Mercantile Exchange.

Investors have been waiting for any clue about the Fed’s plans for the rest of the year, with most economists expecting a rate cut before the year is out. However, those hopes were somewhat dashed Friday after the government reported better-than-expected employment numbers that eased fears the economy would slide into a recession.

Policymakers during the Sept. 18 meeting believed that “some further slowing of employment growth was likely.” They also thought -- before seeing the jobs report -- that a further slowing in employment was likely this year.

“The Fed is in a pretty good situation right now,” said Ed Peters, chief investment officer at PanAgora Asset Management. “They want a clear direction, they don’t like when things are too much in the middle, and they are getting some pretty clear signs.”

He said most analysts were now focused on the pace of third-quarter earnings, which unofficially started after the closing bell Tuesday when Alcoa reported results. The aluminum producer said profit rose 3%, though sales fell from the year-earlier period.

The results fell short of Wall Street expectations. Alcoa, which rose $1.42, or 3.7%, to $39.72 during the regular session, was little changed after hours.

Meanwhile, Yum Brands rose $1.82, or 5%, to $38.11 after the company Monday reported stronger-than-expected third-quarter profit. Although revenue in the U.S. declined, strong international sales boosted results.

Molson Coors shares rose $5.32, or 10.4%, to $56.15 after the brewer said it planned to combine its U.S. brewing operations with SABMiller in an effort to compete better against industry leader Anheuser-Busch.

Anheuser-Busch shares retreated 46 cents to $51.57.

The joint venture will be known as MillerCoors.

Google rose again Tuesday after closing above $600 for the first time Monday. The stock added $5.57 to $615.18.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 2.80 billion shares, up from 2 billion shares Monday.

The Russell 2000 index of smaller companies rose 5.58 points, or 0.66%, to 845.72.

Overseas, Britain’s FTSE 100 rose 1.14%, Germany’s DAX index rose 0.08% and France’s CAC-40 advanced 0.56%.