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Buoyed by economic report, U.S. stocks sharply higher

First Published Dec 16 2013 08:13AM      Last Updated Dec 16 2013 01:39 pm

New York » Stocks broke through a slump and posted strong gains on Monday, powered by two big corporate deals and a report that suggests the economy is getting stronger.

The Dow Jones industrial average is now up two trading days in a row and has reduced some of the losses from last week.

Stocks have turned volatile ahead of a Federal Reserve meeting that begins Tuesday, as investors bet on whether the central bank will dial back the stimulus that has boosted stock prices this year. All of the big indexes are up more than 20 percent for 2013.



Karyn Cavanaugh, market strategist with ING U.S. Investment Management, said she doesn’t expect such large returns next year — maybe more like 10 percent.

"But that’s actually good for investor confidence," she said. "When they see these big huge numbers, I think they look at it with kind of a jaded eye and think, ‘Is that really sustainable? Maybe it’s already run its course so I want to get out.’"

As of 1:52 Eastern time, the Dow was up 140 points, or almost 1 percent, at 15,895, after rising almost 175 points in the morning. The Standard & Poor’s 500 index rose 12 points, or 0.7 percent, to 1,787. The Nasdaq composite was higher by 28 points, or 0.7 percent, at 4,029.

Two major deals caught investors’ attention: Chipmaker Avago Technologies is buying LSI Corp. for $6.6 billion. Avago was up $4.47, or 10 percent, to $50.12, while LSI rose $3.05, or 39 percent, to $10.97. AIG is selling its aircraft leasing business for about $5.4 billion to Dutch leasing company AerCap. AIG has been selling major assets after getting a bailout during the financial crisis. Its shares rose 71 cents, or 1 percent, to $50.44.

The Avago-LSI deal helped make tech stocks the biggest gainers among the 10 industries in the S&P 500, all of which rose. Others with gains included computer hard drive makers Western Digital and Seagate, which both benefited from analyst upgrades.

Also Monday, the Federal Reserve said factory production accelerated in November as auto production surged. The gains in manufacturing could help boost economic growth.

Just last week, such positive reports were making investors nervous. That’s because they feared that the Fed would think that the economy is doing so well that its $85 billion in monthly bond-buying is no longer needed.

"People are starting to warm to the idea that good news is good news," said Brad McMillan, chief investment officer for Commonwealth Financial. For a while, investors felt, "’Oh my goodness, we won’t be able to survive without Fed support.’ But people are actually seeing that things really are getting better."

The Fed will release a statement and projections for the economy Wednesday. Economists are almost unanimous in believing that the Fed will not begin winding down its stimulus program just yet.

This year’s stock rally has been fueled by that stimulus, higher corporate earnings, and a slow but steady recovery in the U.S. economy.

Perhaps because of the slow recovery, only about half of the general public noted the market’s strong performance this year, according to a new Associated Press-GfK poll. Investors were more aware of the booming market, however, as 73 percent said it improved.

Americans, in general, aren’t expecting another bang-up year for stocks market, according to the poll.

Of the people polled, 40 percent think the market will stabilize where it is now by the end of 2014, with 39 percent predicting that it will drop, but not crash. Only 14 percent believe the market will rise and 5 percent think it will crash.

On Monday, Energy stocks had the second-biggest gains in the S&P 500, led by Tesoro, which runs refineries and gas stations. It was up $2.18, or 4 percent, at $58.48. Exxon Mobil rose $2.50, or 3 percent, to $97.81 after being upgraded by Goldman Sachs. It was the second-biggest gainer among the 30 stocks in the Dow.

The price of oil rose 98 cents, or 1 percent, to $97.58 in New York because of signals that Europe’s economy is on the mend and the closure of export terminals in Libya.

 

 

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