NEW YORK, USA

The mere discussion of more economic stimulus from the Federal Reserve was enough to send stocks higher yesterday. The Dow Jones industrial average rose 20 points, its third day of gains.

Minutes from the Fed’s latest policy meeting on August 9 showed that central bank officials discussed a variety of options to bolster the economy, including buying more Treasury bonds. In the end, they decided to keep interest rates low until at least mid-2013.

The news that more aggressive action was being considered gave investors a reason to buy stocks. “They want to see stimulus and they hope stocks will go higher,” said Joseph Saluzzi, co-head of stock trading at Themis Trading.

The Federal Reserve has purchased Treasury bonds twice in the past as a way to keep long-term interest rates low. The Fed’s first bond-buying programme was in 2008, at the height of the financial crisis. The second, announced last August, helped to push the Dow up 28 per cent through April 29. Lower interest rates on bonds give investors an incentive to move money out of bonds and into stocks and other assets.

Stocks were mixed for much of the day yesterday after an index of consumer confidence plunged in August to the lowest level since April 2009. Trading volume was also lighter than normal because many investors are on vacation.

The Dow Jones industrial average rose 20.70 points, or 0.2 per cent, to close at 11,559.95 yesterday. The Dow was down as many as 109 points five minutes after the consumer confidence report came out at 10:00 am. It traded mixed for most of the day and turned higher in the last hour of trading. The Dow has risen for three days straight, and six out of the last seven.

Boeing Co rose 2.2 per cent, the most of the 30 companies in the Dow, after the aircraft maker said it received approval from its board to build a version of its workhorse 737 jet with a redesigned engine. That should help it compete better with rival Airbus.

The Standard & Poor’s 500 rose 2.84 points, or 0.2 per cent, to 1,212.92. The Nasdaq composite index rose 14, or 0.6 per cent, to 2,576.11.

Companies that rely most heavily on consumer spending had some of the biggest losses. Retailers Kohl’s Corp and Lowe’s Cos each fell 2.2 per cent. Best Buy Co Inc fell 0.8 per cent.

The sharp fall in the measure of how US consumers feel about the economy could mean weaker sales for retailers and makers of consumer goods like clothes and shoes. Retailers are in the midst of the critical back-to-school shopping season, which can account for as much as 25 per cent of their annual revenue.

Trading volume, or the number of shares bought and sold, was lower than usual. About 3.97 billion shares exchanged hands on the New York Stock Exchange, almost a third less than August 8, when stocks plunged on massive volume after the US Government’s credit rating was downgraded.

Low volume is worrisome because it suggests that relatively few investors are driving the stock market’s gains or losses. That creates the risk for bigger price swings, said Stephen Carl, principal and head of equity trading at The Williams Capital Group. A lack of volume also indicates that some investors don’t believe that stocks are worth buying right now.

Stocks have swung widely in August. The Dow was down as much as 7.4 per cent for the year on August 10, but it is now down 0.2 per cent. On Monday the Dow soared 254 points, its fourth-largest gain this year. Insurers rose the most after it became clear the damage from Tropical Storm Irene wasn’t as bad as analysts had feared.

Bond prices have also been volatile. The yield on the 10-year Treasury note briefly fell to a record low below two per cent on August 18 on a very weak report on manufacturing in the Northeast from the Philadelphia Federal Reserve. Yesterday, the yield fell to 2.18 per cent, down from 2.27 per cent late Monday.

AP