* Fed tapers purchases by $10 bln a month, keeps rates low
* November housing starts highest in nearly six years
* Ford, Jabil Circuit both tumble on outlook
* Dow up 1.1 pct, S&P 500 up 0.9 pct, Nasdaq up 0.4 pct
By Caroline Valetkevitch
NEW YORK, Dec 18 U.S. stocks rallied on
Wednesday after the Federal Reserve announced a small reduction
in its stimulus program but stressed interest rates would stay
low for even longer than previously promised.
The move came as surprise to many analysts, with most
surveys leading up to the meeting forecasting the Fed would wait
until early next year to announce any stimulus reduction.
That the reduction was relatively small was a relief to
investors, analysts said, as well as the fact that it removes
from the market the uncertainty over when the Fed would start to
scale back its bond-buying. The central bank said it would
reduce its monthly asset purchases by $10 billion to $75
The move points to better prospects for the economy and
labor market and marks a historic turning point for the largest
monetary policy experiment ever.
"This is a vote of confidence in the economy and represents
the first step toward monetary policy normalization. The forward
guidance on rates was dovish, as the Fed endeavors to minimize
any negative fallout from the decision to taper," said David
Joy, chief market strategist, Ameriprise Financial, Boston.
The central bank said it "likely will be appropriate" to
keep overnight rates near zero "well past the time" that the
jobless rate falls below 6.5 percent.
The S&P 500 briefly added to losses following the
announcement but quickly rebounded and turned positive, with
major indexes advancing to session highs. The CBOE Volatility
index VIX slumped 11 percent, while nine of the 10 S&P
500 sectors were positive.
The Dow Jones industrial average rose 174.98 points
or 1.1 percent, to 16,050.24, the S&P 500 gained 16.6
points or 0.93 percent, to 1,797.6 and the Nasdaq Composite
added 16.32 points or 0.41 percent, to 4,040.
Fed Chairman Ben Bernanke began hinting at a reduction in
the stimulus back in May. Strong data recently seemed to suggest
that the timeline could be pushed up. Still, a survey of fund
managers by Bank of America Merrill Lynch released on Tuesday
revealed that only 11 percent of those polled expected a taper
Gains in the Nasdaq were limited by Jabil Circuit Inc
, which tumbled 20.6 percent to $15.66 a day after
forecasting current-quarter results way below Wall Street
estimates. The outlook weighed on other companies in the
technology space, including Apple Inc, which fell 1.7
percent to $545.96.
Energy companies led the way higher on the Dow and S&P 500
as oil prices gained. Shares of Exxon Mobil XOM.N> were up 2.4
percent at $99.12.
Shares of Lennar Corp rose 5.2 percent to $37.03
after the No. 3 U.S. homebuilder reported a 32 percent jump in
fourth-quarter profit. Also, data on Wednesday
showed U.S. housing starts surged to the highest in nearly six
years in November, a sign of strength in the housing market.