US: Wall Street closes at 2016 high as Fed signals fewer rate hikes

[NEW YORK] The S&P 500 closed at its highest level of the year on Wednesday after the US Federal Reserve left interest rates untouched and signaled fewer rate hikes in coming months.

The Fed indicated moderate US economic growth and "strong job gains" would allow it to tighten policy this year with fresh projections showing policymakers expected two quarter-point hikes by the year's end, half the number seen in December.

But the US central bank noted the United States continues to face risks from an uncertain global economy.

Because of that uncertainty, "the committee judged it prudent to maintain the current policy stance at this meeting," Fed chair Janet Yellen said.

The decision to keep rates steady was in line with analyst predictions, but the Fed's tone was surprising to some.

"Most folks were looking for a slightly hawkish statement and they did not deliver in that," said Tom Porcelli, RBC Capital Markets chief US economist.

"It was balanced at best and probably even slightly dovish."

The Dow Jones industrial average closed up 74.23 points, or 0.43 per cent, to 17,325.76, the S&P 500 had gained 11.29 points, or 0.56 per cent, to 2,027.22 and the Nasdaq Composite had added 35.30 points, or 0.75 per cent, to 4,763.97.

The CBOE volatility index a gauge of what equity investors are willing to pay for protection against a drop on the S&P 500, closed at its lowest since early December.

Eight of the 10 major S&P sectors closed higher. Materials were up the most at 1.74 per cent. Healthcare and financial stocks lagged.

The S&P energy sector rose 1.6 per cent as US oil prices jumped almost 6 per cent after major producers firmed up plans to discuss an output freeze and US crude stockpiles grew less than expected.

In corporate news, shares of Peabody Energy Corp, the largest US coal producer, fell 45.4 per cent to US$2.19. after the company said in a regulatory filing it may have to seek bankruptcy protection.

FedEx shares jumped 5.3 per cent after markets closed on a strong full-year earnings forecast in its fiscal third-quarter financial results.

LinkedIn fell 4.9 per cent at US$109.81 and Gap fell 1.4 per cent to US$29.28 after Morgan Stanley downgraded both stocks.

Mallinckrodt dropped 6.4 per cent to US$55.69, continuing its slide for a second day, while fellow specialty drugmaker Endo International recouped some of its losses from Tuesday, jumping 4.1 per cent to US$33.91.

About 7.6 billion shares changed hands on US exchanges, below the 8.1 billion average over the last 20 sessions.

Advancing issues outnumbered declining ones on the NYSE by 2,462 to 590, for a 4.17-to-1 ratio on the upside; on the Nasdaq, 1,675 issues rose and 1,084 fell for a 1.55-to-1 ratio favoring advancers.

The S&P 500 posted 36 new 52-week highs and five new lows; the Nasdaq recorded 38 new highs and 62 new lows.

REUTERS