Stocks edge higher after Fed eases bank supports

[February 20, 2010]  NEW YORK (AP) -- The stock market ended a strong week with modest gains after investors found good news in the Federal Reserve's decision to begin dismantling emergency lending measures for banks.

The Dow Jones industrial average rose for a fourth day Friday, edging up 9 points to record its best week in more than three months.

Stocks initially fell in response to the Fed's announcement late Thursday that it is raising the rate it charges banks for emergency loans, known as the discount rate. Stocks turned higher in late morning trading as investors saw the Fed's move as a vote of confidence that the financial system was recovering and that banks didn't need as much support.

A tame report on consumer prices brought reassurance that the Fed would be able to hold down more important rates for consumers and business loans.

"The Fed certainly isn't exiting the easy money policy door yet," said Burt White, chief investment officer at LPL Financial. "They have their coats and boots on."

The central bank didn't change its more widely used federal funds rate, which is a benchmark for short-term interest rates.

Jay Leupp, president of Grubb & Ellis AGA mutual funds, said it wasinevitablethat the Fed would raise the discount rate. However the timing and size of future rate hikes for both the discount rate and the federal funds rate are still quite uncertain, he said.

"It's a warning sign, but don't expect more to happen soon," Leupp said.

The focus on rates comes as investors grow more encouraged about the U.S. economy after weeks of concerns about conditions overseas. Debt problems in Greece and other European nations as well as China's move to curb its economic growth brought worries that a global rebound would falter.

After being closed for President's Day on Monday, the Dow jumped 170 points on Tuesday as concern about Greece eased and companies including Kraft Foods Inc. and apparel retailer Abercrombie & Fitch Co. posted earnings that topped expectations. Reports on housing construction and activity at factories pushed stocks higher as the week continued.

On Friday, the Dow rose 9.45, or 0.1 percent, to 10,402.35, its highest finish in a month. The Dow is now down only 0.25 percent for the year.

The broader Standard & Poor's 500 index rose 2.42, or 0.2 percent, to 1,109.17, while the Nasdaq composite index rose 2.16, or 0.1 percent, to 2,243.87.

For the week, the Dow rose 303 points, or 3 percent. It was the second straight weekly gain and the strongest point and percentage increase since the week ended Nov. 6.

The S&P 500 index rose 3.1 percent, while the Nasdaq gained 2.8 percent.

Bond prices rose, pushing yields lower, after a benign report on inflation. Rising prices cut into returns of fixed-income investments. The yield on the benchmark 10-year Treasury note fell 3.78 percent from 3.81 percent late Thursday.

The dollar mostly rose against other major currencies. Gold and oil both rose.

[Associated Press; By STEPHEN BERNARD and IEVA M. AUGSTUMS]

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