NEW YORK – The Federal Reserve wanted to push interest rates lower and jump-start financial markets with its $600 billion economic stimulus plan. So far the Fed is getting the results it wants.
Long-term interest rates sank and stocks indexes hit new highs Thursday, a day after the Fed announced its massive bond-buying plan. The Dow Jones industrial average soared more than 220 points, reaching another high for the year. All three main stock indexes have now reached 2010 highs this week.
After five straight days of gains, the Dow Jones industrial average returned to levels last seen in early September 2008, before the collapse of Lehman Brothers and the worst days of the financial crisis.
"Much of today's gains comes as a result of the government pumping money into the market," said Joe Kinahan, the chief derivatives strategist at TD Ameritrade.
The dollar fell against other currencies as traders anticipated lower U.S. interest rates because of the Fed's bond-buying program. Crude oil, gold and other commodities rose.
The Dow rose 219.71 points, or 2.0 percent, to close at 11,434.84. The broader S&P 500 index rose 23.10 points, or 1.9 percent, to 1,221.06, and the technology-heavy Nasdaq composite gained 37.07 points, or 1.5 percent to 2,577.34.
Retailers reported solid sales in October, sending shares of major retailing companies sharply higher. Gap Inc. rose 6 percent while Macy's Inc. jumped 6.6 percent.
"Those retail numbers are telling us that the holiday season is going to get off to a good start," said Stephen Jones, the chairman of Jones Villalta Funds.
On Wednesday, the Federal Reserve announced it plans to buy $600 billion in bonds in an effort to spur spending and ultimately lower the unemployment rate. The central bank was unusually detailed in its announcement, saying it planned to spend $75 billion a month on bonds until at least the middle of next year. That's on top of the roughly $35 billion a month its already buying.
In corporate news, shares of BHP Billiton, the world's largest mining company, rose 5.9 percent after the Canadian government rejected BHP's $38.6 billion bid to buy Potash Corp. of Saskatchewan. After the market closes, Kraft Foods Inc., Starbucks Corp. and CBS Corp. will announce earnings.
The Fed's plan will increase the supply of dollars held by banks and most likely push the value of the currency down. The dollar is at its lowest level since December 2009 against a broad basket of currencies, and was down 0.8 percent against that index Thursday. Energy prices jumped, sending oil up $1.80 to $86.49.
Finance ministers in emerging economies like China and Brazil have criticized the Fed's stimulus plan, arguing that low interest rates in the U.S. could fuel asset bubbles in their countries.
Treasury prices have been climbing since the Fed's announcement Wednesday afternoon. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.47 percent from 2.58 percent the day before.
Five stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 5.8 billion shares.