When Fed talks, markets listen Stocks soar on central bank’s plan

David Pologruto works on the floor of the New York Stock Exchang as Federal Reserve Chairman Ben Bernanke holds a televised news conference in Washington on Thursday. Stocks spiked after Bernanke's remarks. (AP/Richard Drew)

NEW YORK — The stock market staged a huge rally Thursday after investors got the aggressive economic help they wanted from the Federal Reserve.

The Dow Jones industrial average spiked more than 200 points and cleared 13,500 for the first time since the beginning of the Great Recession. The average is within 625 points of its all-time high.

The Fed said it would buy $40 billion of mortgage securities a month until the economy improves.

“They’re saying that the punch bowl, the fuel for the economy, isn’t going away; it’s going to be here as long as you need it,” said Tony Fratto, a former aide to President George W. Bush and managing partner at Hamilton Place Strategies, a policy consulting firm in Washington.

The Dow closed up 206.51, the seventh-biggest gain this year, at 13,539.86, its highest close since the last days of December 2007, the first month of the recession.

The broader S&P 500 index was up 23.43 at 1,459.99, also its highest since December 2007. The Nasdaq composite index, which has been trading at its highest levels since 2000, was up 41.52 at 3,155.83.

David Abuaf, chief investment officer at Hefty Wealth Partners, said he expects investors to keep shifting from safer assets like government bonds to stocks. That could push stock prices higher and start a cycle of increased wealth and spending.

“People will feel more confident, consumers will buy more goods, and GDP growth will increase,” he said, referring to the gross domestic product, or economic output.

The stock market already had enjoyed a summer rally, in part because investors were betting on more Fed action. The Dow has climbed more than 1,100 points since the start of June.

Stocks spiked Thursday in industries across the economy. Materials companies, which tend to do well when the economy picks up, enjoyed the biggest gain, 2.6 percent as a group. Bank stocks also surged.

This is the third round of bond-buying by the Fed since the financial crisis struck in the fall of 2008. The goal is to lower long-term interest rates, get people to borrow and spend more and push investors into stocks.

If history is a guide, stocks could rally a bit more. In the three months following March 2009, when the Fed said it would expand its first round of buying, the S&P 500 rose 18 percent. In the three months after the central bank hinted at a second round of buying in August 2010, the S&P rose 14 percent.

Stocks rose Thursday after the open, but barely. Then the Fed released a statement about its moves shortly after 12:30 p.m., and prices began to climb steadily. Some Fed watchers homed in on a pledge to keep stimulating the economy for a “considerable” time after it appears to have strengthened.

Then Chairman Ben Bernanke started speaking at a press conference at around 2:15, and stocks shot up. A few minutes into the conference, the Dow was up nearly 240 points.

“We are looking for ongoing, sustained improvement in the labor market,” Bernanke said. “There’s not a specific number in mind, but what we’ve seen in the last six months isn’t it.”