Stocks Rally on Fed Plan to Buy U.S. Debt

The Federal Reserve fueled the rally on Wall Street Wednesday after the central bank announced a plan to buy U.S. debt.

The Dow Jones Industrial Average and S&P had been lower for much of the day but rebounded on the Fed news, with the Dow gaining 1.2 percent and the S&P jumping 2.1 percent, putting it within the 800 mark.

The Nasdaq, which gained 2 percent, was higher all day, buoyed by M&A news: Sun Microsystems surged more than 79 percent following news that the company is in talks with IBM to buy Sun for at least $6.5 billion in cash.

The S&P has gained 17.4 percent in the past seven sessions, its best seven-day gain since 1939.

The Dow gained 14.4 percent and the Nasdaq advanced 17.5 percent in the past seven days.

With the benchmark federal-funds rate at nearly zero, the Fed has decided to shift its focus to pumping money into the credit market.

After a two-day meeting, the central bank said it would buy up to $300 billion of longer-term U.S. government debtin the next six months and expand its purchases of mortgage-related debt.

Some traders commended the Fed for its aggressive action and suggested it would probably help slow down the recession in the second quarter, while others worried that the move would cause a run on the dollar.

>> Fed Move Sends a Mixed Signal to Market

Meanwhile, on Capitol Hill, lawmakers grilled AIG CEO Edward Liddy, who said he's asked some employees who received more than $165 billion in bonuses to voluntarily return half the money.

Citigroup and Bank of America continued to barrel higher even amid news that Citi is losing chief economist Lewis Alexander to the Treasury Department.

Citi jumped 23 percent, closing at $3.08, while Bank of America gained 22 percent to close at $7.67.

Shares of CNBC parent General Electric advanced 3.2 percent as the company prepares to give investors a full accounting Thursday of its commercial real-estate portfolio.

General Motors shares climbed 5.9 percent amid speculation about whether or not the troubled auto maker will file for banruptcy, with CEO Rick Wagoner saying he now is warming to the idea.

Coca-Cola shares rose 0.5 percent even as China rejected its $2.4 billion bid for Huiyuan Juice.

On the earnings front, Adobe jumped 12 percent after the software maker met Wall Street's targets.

And Darden Restaurants rocketed 20 percent after the company beat estimates and raised its full-year earnings forecast, though it said sales would be flat or slightly lower.

The morning's economic news had little effect on the market.

Consumer prices rose 0.4 percentin February, the biggest monthly gain since July. Excluding volatile food and energy costs, core CPI was up just 0.2 percent.

Both CPI numbers came in about 0.1 percent above expectations. Tony Crescenzi of Miller Tabak pointed out that an increase in car prices contributed 0.1 percent to the overall number, which could explain the miss.

The CPI report came in contrast to yesterday's PPI report, which showed producer prices rose 0.1 percent in February, as energy prices moderated.

The current account deficit narrowed sharply to $132.8 billion in the fourth quarter from an upwardly revised $181 billion in the third quarter.

Still to Come:

WEDNESDAY: Earnings from Oracle and Nike after the bell
THURSDAY: Weekly jobless claims; leading indicators; Philly Fed survey; Earnings from FedEx; GE to provide details on GE Capital
FRIDAY: Quadruple witching; Fed's Bernanke speaks about financial crisis at bankers' convention in Phoenix