Despite drifting in and out of positive and negative territories, stocks focused on some bright spots and managed to finish higher on Wednesday -- a day after Tuesday's broad, Fed-sparked sell-off.
"This is a technical bounce from yesterday's sell-off, which appears to have been an overreaction to the Fed's outlook on the economy. If the rally continues, this week's rate cut will be a non-event," says Stephen Carl, principal and head of equity trading for the Williams Capital Group.
On Tuesday, the Federal Reserve cut interest rates for the seventh time in 2001. Investors jeered at the Fed's move, focusing on comments by the central bank's policy-making committee that U.S. economic conditions remain weak.
But there was some good news Wednesday to lift blue chips, in particular. Auto giant General Motors (GM ), a Dow component, affirmed its third quarter earnings per share outlook of $0.83 per share -- slightly above the consensus forecast of Wall Street analysts. The company also says fourth-quarter production will be down slightly, about 1% to 3% lower than a year ago. Shares of GM gained 2%. Other Dow winners included diversified conglomerate Minnesota Mining & Manufacturing Co. (MMM ), which added more than 2%.
And in the technology sector, semiconductor stocks got a boost from an industry association report suggesting the outlook for the battered industry may be improving. Eric Efron, co-manager of USAA Mutual Fund:Aggressive Growth Fund (USAUX ), noted some investors are starting to look at semiconductors, and maybe the equipment area, as ways to take advantage of cyclical stocks that are poised for an upswing. "The semiconductors traditionally are one of the leading industries out of the slump," Efron tells Standard & Poor's.
The Dow Jones industrial average ended up 102.76 points, or 1.02%, to 10,276.90. The Nasdaq Composite gained 28.71 points, or 1.57%, to 1,860.01. Meanwhile, the broader S&P 500 added 8.05 points, or 0.70%, to 1,165.31.
The U.S. dollar was mixed against other major currencies on a weak U.S. economic outlook from the Federal Reserve and the reduced federal budget surplus. In energy markets, oil futures posted gains after fresh industry data showed sharp declines in crude oil and gasoline inventories.
U.S. Treasuries finished lower, even though the Federal Reserve indicated in its policy statement Tuesday that it might cut rates again in the near future. S&P researchers cited some profit taking on Tuesday's bond rally. Additionally, no major economic data reports were released Wednesday.
European markets ended the session mixed. In London, the Financial Times-Stock Exchange 100 index was down 21.60 points, or 0.40%, to 5,408.70. Gains were restrained by a report showing second-quarter GDP growth slowed to 0.3% from 0.5% in the first quarter. In France, the CAC 40 lost 22.73 points, or 0.47%, to 4,812.14. In Germany, the DAX Index gained 4.10 points, or 0.08%, to 5,220.21, following a report showing an unexpected rise in business confidence.
Asian markets closed mixed. Japan's Nikkei 225 index gained 116.05 points, or 1.03%, to close at 11,396.43. In Hong Kong, the Hang Seng index lost 251.78 points, or 2.20%, to close at 11,188.57.
By Heesun Wee in New York