Wall Street bounces on weak dollar, strong earnings

Traders work on the floor of the New York Stock Exchange October 14, 2010.

NEW YORK (Reuters) - Wall Street bounced back on Wednesday as a fall in the dollar spurred buying in industrial and commodity-linked shares, while another batch of strong corporate earnings added to gains.

Equities and the greenback have had an inverse relationship lately because the Federal Reserve's ultra-low interest rate policy has led investors to buy riskier assets like stocks and commodities.

"The correlation has come back strongly and much of that has to do with the Fed and the promise of asset purchases," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

The euro and the popularly traded S&P E-mini futures contract have tracked each other closely in the last month. In the last 22 sessions, they have had a positive correlation coefficient of 0.8, implying a very strong relationship between the two.

Volume was in roughly in line with the average for the year so far but was below Tuesday's high volume selloff.

The Dow Jones industrial average .DJI gained 129.35 points, or 1.18 percent, to 11,107.97. The Standard & Poor's 500 Index .SPX rose 12.27 points, or 1.05 percent, to 1,178.17. The Nasdaq Composite Index .IXIC added 20.44 points, or 0.84 percent, to 2,457.39.

Materials shares led the broad market higher. Freeport-McMoRan Copper & Gold (FCX.N) gained 2.8 percent to $95.35 and the S&P materials index .GSPM rose 2 percent. Commodities gained as the U.S. dollar dropped to a near 15-year low against the yen.

The Boeing Company (BA.N) gave the biggest boost to the Dow, up 3.3 percent at $71.36. The company reported a quarterly profit that beat expectations and raised its full-year forecast, helped by a recovery in the commercial airplane market.

Delta Air Lines (DAL.N) and US Airways Group (LCC.N) jumped after they reported strong profits. Delta surged 10.9 percent to $12.97 and US Airways jumped 7.4 percent to $10.84.

After the dollar's rise on a surprise Chinese interest rate hike on Tuesday, the currency's change of fortune prompted a snap-back in stocks.

Eaton Corp (ETN.N) was among major industrial companies that raised their profit forecasts for the rest of the year, sending its shares up 4.1 percent at $86.82.

Earnings from financial companies were mixed. Wells Fargo & Co (WFC.N) reported higher earnings, but Morgan Stanley (MS.N) reported a surprise loss.

Wells Fargo rose 4.3 percent to $25.60, while Morgan Stanley fell 0.04 percent to $25.38. US Bancorp (USB.N) rose 0.1 percent to $22.83 after reporting higher earnings.

Regional banks weighed on the KBW Bank Index .BKX, which was off 0.5 percent. Marshall & Ilsley Corp MI.N, Wisconsin's largest bank, reported a larger-than-expected loss, sending its shares down 10.2 percent to $6.24.

Much of Wall Street's gains since the end of the summer have come from expectations the Federal Reserve will act to bolster the economy.

Keeping those expectations alive, the Fed said in its Beige Book that the U.S. economy grew sluggishly in recent weeks, with scant inflation pressures, adding that employers were reluctant to hire or invest.

About 8.58 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq -- below the year's average so far of about 8.77 billion. Volume in the last session was 9.85 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 3 to 1. On the Nasdaq about five stocks rose for every two that fell.

(Reporting by Edward Krudy; Editing by Kenneth Barry)