NEW YORK (Reuters) - U.S. stocks rose on Wednesday, capping the S&P 500’s longest winning streak since November, as financial stocks soared on optimism the Obama administration was making progress on a plan to relieve banks of money-losing assets.
Stocks initially added gains following the Federal Reserve’s statement that it is prepared to buy long-term U.S. government debt, but the boost faded upon the realization that the Fed’s purchases won’t be made any time soon.
Financial stocks stood out, with JPMorgan (JPM.N) among the Dow’s top advancers with a gain of 10.4 percent. Bank of America (BAC.N) climbed nearly 14 percent, while Citigroup (C.N) shot up more than 18 percent.
The S&P financial index .GSPF rose 13 percent on reports that plans were advancing to create a “bad bank” that would mop up assets whose worth has plummeted, and in turn help revive lending to consumers and businesses.
“What moved the market earlier in the day is the bad bank concept gaining more acceptance,” said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago. “I don’t think there are any big shockers from the Fed’s statement.”
The Dow Jones industrial average .DJI finished up 200.72 points, or 2.46 percent, at 8,375.45. The Standard & Poor's 500 Index .SPX climbed 28.38 points, or 3.36 percent, to 874.09. The Nasdaq Composite Index .IXIC ended up 53.44 points, or 3.55 percent, at 1,558.34.
But after the bell, companies including Starbucks Corp (SBUX.O) coaxed investors back down to earth with a reality check. The coffee chain missed profit estimates, sending its stock down more than 2 percent to $9.40 after hours.
In other news after the market’s close, Qualcomm Inc (QCOM.O), the largest maker of cell-phone chips, cut its fiscal 2009 revenue outlook and Allstate Corp (ALL.N), the largest publicly traded home and auto insurer, reported a $1.1 billion quarterly loss. Qualcomm’s stock lost 2.6 percent to $35.88 in extended-hours trading, while Allstate’s shares plunged 11 percent to $26.35 after hours.
When trading resumes on Thursday, investors are also likely to focus on the U.S. House of Representatives’ approval late Wednesday of an $825 billion economic stimulus bill. The House voted 244 to 188 to pass the bill containing President Barack Obama’s program for emergency spending and tax cuts. The measure next goes to the U.S. Senate for debate, starting probably sometime next week.
With Wednesday’s advance, the benchmark S&P 500 capped its fourth straight day of gains, its longest run-up in two months.
Worries about the financial sector’s health have been the biggest hurdle for the market, fueling unease about stocks’ performance in January, which is traditionally seen as a guide to the year’s prospects.
On recent bets that the government will save the day, the indexes have swiftly erased most of their year-to-date losses.
Year to date, the benchmark S&P 500 is now down 3.2 percent, a marked improvement from a 6.4 percent loss seen at Tuesday’s close. After starting 2009 up more than 20 percent from its November 21 bear market low, the S&P is up 16.2 percent from that significant low.
Adding to confidence in banks, an industry source said Sheila Bair, the chairman of the Federal Deposit Insurance Corp, is floating the idea that the FDIC could manage the ”bad bank.
JPMorgan shares rose $2.60, or 10.4 percent, to $27.66 on the New York Stock Exchange, while Bank of America finished at $7.39. The Financial Select Sector SPDR (XLF.P), a financial exchange-traded fund, gained 12.7 percent.
The “bad bank” option had an effect on the market beyond financials as a loosening up of lending would drive both consumer and business spending, and motivate investors.
Technology shares jumped, led by such bellwethers as iPhone maker Apple Inc (AAPL.O), up 3.8 percent at $94.20 on Nasdaq. International Business Machines Corp (IBM.N), a technology services heavyweight, was the Dow’s top advancer, finishing up 3.5 percent at $94.82 on the NYSE.
Internet media company Yahoo Inc YHOO.O climbed 8 percent to $12.24 after it posted quarterly results late on Tuesday that beat analysts’ expectations.
Following its two-day policy meeting, the U.S. Federal Reserve also signaled in its statement some concern that deflation risks were rising. The central bank’s policy-setting panel held its fed funds target range for overnight interest rates at zero to 0.25 percent -- the level reached in December.
Volume was active on the New York Stock Exchange, where about 1.55 billion shares changed hands, above last year’s estimated daily average volume of 1.49 billion shares, while on the Nasdaq, about 2.17 billion shares traded, below last year’s daily average of 2.28 billion.
Advancers outnumbered decliners on the NYSE by a ratio of more than 6 to 1, while on the Nasdaq, about seven stocks rose for every two that fell.
Additional reporting Deepa Seetharaman; Editing by Jan Paschal