Stocks lost a little ground in the final minutes of trading, but were still significantly higher, after the Federal Reserve reported it has seen "modest signs of growth" in the economy and as investors focused on strong earnings reports and a slide in the dollar.
The Dow Jones Industrial Average rose more than 130 points, aday after a rocky session, with stocks posting their biggest point and percentage drop since Aug. 11.
Most Dow components rose, led byBoeing , Intel, and DuPont. Bank of America , fell slightly.
The S&P 500 Index and the Nasdaq gained. TheCBOE Volatility Index, widely considered the best gauge of fear in the market, fell to below 20.
Most S&P 500 sectors gained, led by materials, energy and telecom.
The Federal Reserve's monthly Beige Book provided further evidence the economy is growing, although slowly, but unlike in September, the Fed did not characterize the economy as "decelerating." The report said inflation continues to remain subdued, but said growth is picking up in several districts.
Stocks had been higher after several strong earnings reports, and a drop in the dollar against a basket of currencies. Materials stocks got a boost from the falling dollar, including Cliffs Natural Resources and Freeport-McMoRan .
The market appeared to be shrugging off an unexpected rise in Chinese interest rates, announced on Tuesday to quell rising inflation within the country. The move had helped trigger the market's fall yesterday.
While stocks were higher Wednesday, Chip Brian, president of SmarTrend, has watched the rate of increase in the market during the last week slow down relative to the rate that existed throughout most of September. To Brian, that slowdown is a sign of an "exhausted" market, which means it may be near a top.
That trend is particularly true, Brian said, when the slow down is accompanied by a rise in trading volume, which has occurred over the last few days.
Volume on the consolidated tape of the New York Stock Exchange, for instance, exceeded 5.5 billion shares on Tuesday, after trading at 4 billion or below since the summer.
Banks remained in focus a day after a group of eight investors, including the New York Federal Reserve, accused Bank of America of inappropriately bundling some mortgages into more than $47 billion of securities. The bank said it would fight the charges. Also, the bank's shares were downgraded by several brokerages because of potential loan losses. Stifel Nicolaus said fundamental analysis of the bank, however, doesn't warrant a downgrade.
The White House also warned it would hold lenders accountable for illegal foreclosure practices.
Investor Jim Rogers, who started the Quantum Fund with George Soros, said on CNBC that he does not think bank stocks are attractive now because there is still uncertainty about their balance sheets.
In technology news, Apple unveiled new Mac softwareWednesday nicknamed the Lion, that includes video-chat and the ability to buy from an online applications store.
Verizon Wireless , meanwhile, announced plans to sell a tablet computer by Samsungfor $30 less than Apple's iPad. The wireless phone provider recently said it would sell a Wi-Fi version of the iPad later this month for $629.99, that includes an accessory that allows it to connect to its network.
Banks were also in focus in earnings news, as Morgan Stanley's shares recovered from an initial slide after posting earnings that were worse than expected, even as its quarterly revenue results beat forecasts. Profits at the investment bank were hurt by tighter debt-related credit spreads.
Wells Fargo , meanwhile, beat analyst expectationswith reported record net income in the third quarter of $3.34 billion, thanks to its merger with Wachovia and the growth of its core business. US Bancorp , too, reported a better-than-expected boost in third-quarter earnings, and said corporate loan demand rose for the first time in two years.
The stock market rally this fall benefited Blackrock, which posted a surprising rise in profits. The investment managers received more assets from clients. Blackrock earned $2.75 a share, far better than thte $2.46 anticipated by analysts, according to Thomson Reuters I/B/E/S.
A rise in commercial airline volume helped to improve Boeing's results for the quarter, and the airline maker also lifted its guidance.
Shares of many airlines also rose Wednesday after good results from major carriers.
International demand for air travel boosted Delta Air Lines to a profit for the third quarter quarter, after a loss in the same period a year ago, while U.S. Airways Group also beat forecasts. American Airlines posted its first profit in three years, excluding items.
Industrials were largely higher after earnings reports. United Technologies rose slightly afterbeating analysts expectations with a 13 percent rise in earnings. Standpoint cut its rating for the stock to "hold" from "buy" after the earnings release saying the diversified manufacturer was fairly valued.
Textron , meanwhile, slumped after the small aircraft maker reported a loss for the third quarter, and revenue fell.
Eaton's third quarter earnings jumped 39 percent, beating forecasts for the diversified manufacturer.
Yahoo shares were higher despite missing sales forecasts. The Internet firm reported after the bell Tuesday.
eBay , Netflix , and SeagateTechnologies will be among companies reporting earnings after-the-bell Wednesday. AT&T , Caterpillar , Credit Suisse , McDonald's and UPS all report before the market opens Thursday.
Boston Scientific soared to the top of the S&P 500 after the medical-device maker reported earnings Tuesday that were double analyst expectations, and the company raised its forecasted for the full year.
Shares of Amylin Pharmaceuticals and Eli Lilly fell after The Food and Drug Administration declined to approvea diabetes drug being developed by the companies. The FDA said the drug required more studies. The companies plan to reapply.
Also in health care news, Pfizer is expanding to Brazil, with the purchase of a 40 percent stake in Brazil's Laboratorio Teuto Brasileiro, a generic drug specialist.
The government of Saskatchewan is expected to reject BHP Billiton's takeover attempt of Potash , the Wall Street Journal reported, citing people familiar with the matter.
While the market was up significantly Wednesday, after Tuesday's sharp sell-off, strategists at UBS securities said in a research note that investors generally are hesitant to reward companies with better-than-expected profits unless it's clear they can repeat that performance in the future.
According to UBS, 35 of 42 companies reported positive earnings-per-share results, with 7.1 percent beating estimates. Those surprises, however, were driven by cost cutting, not revenue growth, which disappoints investors, UBS said.
"Similar to last quarter, the market has actually punished bottom-line surprises if not accompanied by revenues beats," the report said.
Specifically, companies beating profits and revenue estimates, such as Alcoa and Google, "have been handsomely rewarded," rewarded, UBS said, while companies beating earnings estimates, but not revenues, such as GE and JP Morgan, have underperformed.
On the economic front, U.S. mortgage applications fell last weekas interest rates on 15- and 30-year fixed-rate mortgages rose for the first time in six weeks, the Mortgage Bankers Association reported on Wednesday.
Crude oil inventories rose less than expected for the week, by 700,000 barrels. The price of crude oilrose slightly, above $80 a barrel.
Data on crude inventories, will be released at 10:30 am. Investors will also be looking out for the Fed's Beige Book survey at 2.00 p.m.
On the Calendar Next Week:
WEDNESDAY: Beige book; Richmond Fed. President Lacker speaks, Philadelphia Fed President Plosser speaks; after-the-bell earnings from eBay, E*Trade, Netflix and Seagate Technologies.
THURSDAY: ECB Meeting, jobless claims, leading indicators, natural gas inventories, money supply, Kansas City Fed President Hoenig speaks, CBO Director Elmendorf speaks; before-the-bell earnings from AT&T, Caterpillar, Credit Suisse, Eli Lilly, Novartis, Travelers, UPS, Continental Airlines, PNC Bank, Southwest Airlines, and Xerox; after-the-bell earnings from American Express and Amazon.
FRIDAY: G20 Finance Ministers & Central Bank Governor's Meeting; before-the-bell earnings from Verizon, Exelon, Ingersoll-Rand and Schlumberger.
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