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Rebound in commodities carries stocks higher

A REBOUND in commodities is drawing investors back into the stock market.

Major stock indicators rebounded yesterday from a drop the day earlier. The Dow Jones industrials rose 51 points after losing 41 on Monday.

In an about-face, the dollar weakened against other major currencies and commodities like oil and gold bounded higher, lifting energy and material stocks. Financial stocks also rose sharply.

The gains came as the Federal Reserve began a two-day meeting on interest rates. Investors are hoping the Fed will provide a clearer indication of when it may raise rates when it issues a statement at the conclusion of the meeting on Wednesday.

The Fed is widely expected to keep rates at their record low of near zero for the time being. Rock-bottom interest rates have helped fuel the market's nearly seven-month old rally, making cash plentiful and cheap and encouraging investors to buy up riskier assets.

The market appears to be following a well-established pattern where brief selloffs are met with more buying as investors fear missing out on a continued rally.

"Reluctantly, investors are continually being dragged into a market that is finding a path of least resistance to the upside," said Art Hogan, chief market analyst at Jefferies & Co.

The consensus on Wall Street is that the economy is healing despite ongoing challenges like unemployment. But investors still have doubts over how strong the recovery will be, and whether the stock market's more than 50 percent move off of 12-year lows in March accurately reflects the still fragile state of the economy.

"Right now, it's a more orderly market," said Greg Reynholds, senior vice president of asset management at Lenox Advisors. "People are digesting the data, trying to figure out exactly where we're headed."

The Dow Jones industrial average rose 51.01, or 0.5 percent, to 9,829.87. The Standard & Poor's 500 index gained 7.00, or 0.7 percent, to 1,071.66, while the Nasdaq composite index rose 8.26, or 0.4 percent, to 2,146.30.

More than two stocks rose every one that fell on the New York Stock Exchange, where volume came to 1.3 billion shares compared with 1.2 billion Monday.

In other trading, the Russell 2000 index of smaller companies rose 4.72, or 0.8 percent, to 620.69.

Gold and silver prices rose after three days of drops, while oil prices gained US$1.69 to US$71.40 a barrel on the New York Mercantile Exchange.

Commodities rose as the U.S. dollar index, which measures the greenback against a basket of foreign currencies, fell 0.8 percent, after earlier hitting a fresh low for the year. The dollar has fallen sharply since early March, making commodities cheaper for foreign investors, as its appeal wanes amid low interest rates and unprecedented government spending designed to stimulate the economy.

Demand for energy and material stocks increased as commodities rose. U.S. Steel Corp. added US$2.22, or 4.6 percent, to US$50.24, while Chesapeake Energy Corp. jumped US$1, or 3.6 percent, to US$29.11.

Financial stocks were mostly higher after Rochdale Securities analyst Richard Bove raised his target price on Bank of America Corp. to US$25 a share. Shares of the Charlotte, N.C.-based bank rose 36 cents, or 2.1 percent, to US$17.61.

Among technology stocks, Google Inc. shares hit a 13-month high after a Canaccord Adams analyst raised the target price on the stock to US$560. Shares rose as high as US$501.99 and ended at US$499.06, a gain of US$2.06.

In economic news yesterday, a government index showed U.S. home prices rose 0.3 percent in July from the previous month. The index is still 4.2 percent below last year's levels.

After soaring 50.1 percent since hitting a 12-year low in early March, the Dow stands 170 points below the 10,000 mark - a level the average first crossed in March 1999 and hasn't been above since October.

Bond prices rose slightly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.45 percent from 3.49 percent late Monday.


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