The blue-chip indexes hit their highest levels since May, 2001, after the the Beige Book said the economy is expanding at a "moderate" rate.
Stocks finished higher Wednesday, as the Fed's Beige Book report showed steady economic growth amid contained inflation pressures. Falling oil prices set a positive backdrop, and the markets weathered a recovery in Treasury yields, says Standard & Poor's MarketScope.
The Dow Jones industrial average rose 58.43 points, or 0.52%, to 11,209.77, its highest close since May, 2001, led by Caterpillar (CAT ). The broader Standard & Poor's 500 index added 5.54 points, or 0.43%, to 1,303.02, crossing 1,300 for the first time since May, 2001. The tech-heavy Nasdaq composite index climbed 15.94 points, or 0.69%, to 2,311.84.
Investors were sifting through another set of economic readings Wednesday. The Fed's Beige Book report said the economy continued to expand at a "moderate" pace from mid-January through late February. The report is in line with an interest-rate hike at the FOMC meeting March 28, says Action Economics.
Earlier in the session, import prices fell 0.5% for February, in line with expectations, while the New York Fed's Empire State index jumped to 31.16 in March, well ahead of the 19.0 consensus.
The numbers show under-control inflation and an upbeat manufacturing picture, some economists say. "The focus from the Fed's perspective is likely to be on the nonfuel import price data, where the 12-month inflation rate remains very contained," says John Ryding, chief U.S. economist with Bear Stearns. "The New York Fed's Empire State index suggests manufacturing growth strengthened in early March."
The economic calendar Thursday brings reports on February building permits and housing starts, as well as the monthly consumer price index and weekly jobless claims data. The Philadelphia Fed's index is also on tap.
On the corporate side Wednesday, investment bank Lehman Brothers (LEH) posted a 24% uptick in first-quarter profit, topping analyst estimates. The upside surprise followed a 62% earnings increase reported Tuesday by peer Goldman Sachs (GS ).
Also in earnings, Sears Holdings (SHLD ) surged after reporting that its fourth-quarter earnings nearly doubled. The retail conglomerate was formed last year when Kmart acquired Sears.
Of blue-chips in focus, General Motors (GM) was higher on a report that a group led by private-equity firm Kohlberg, Kravis & Roberts and some banks offered as much as $13 billion to buy a majority stake in the automaker's financing arm. Separately, the United Auto Workers union said it is not near a deal with GM and former subsidiary Delphi.
Chemical maker DuPont (DD) rose after lifting its first-quarter earnings guidance to 80 cents a share from 70 cents a share. The Dow component also said it plans to slash 1,500 jobs.
The nation's biggest railroad operator, Union-Pacific Railroad (UNP), raised its projection for first-quarter earnings to between $1 and $1.10 a share, up from between 80 cents and 90 cents. Shares jumped 6%. The Dow Jones Transportation index, of which Union-Pacific is part, rose 97.06 points, or 2.16%, for an all-time high of 4,591.76.
Tax preparer H&R Block (HRB) was lower after New York Attorney General Eliot Spitzer filed a lawsuit against the company alleging fraudulent business practices.
On the brokerage front, Palm (PALM ) was lower after JP Morgan downgraded the handheld-device maker from overweight to neutral. Blackberry maker Research in Motion (RIMM ) was higher.
Among other companies in the news, electronic giant Sony (SNE ) said it will postpone the release of its PlayStation 3 gaming system, reportedly expected this spring, until November.
In the energy markets Wednesday, April West Texas Intermediate crude oil futures closed down 93 cents at $62.17 a barrel after a weekly inventory report showed a larger-than-expected supply increase of 4.8 billion barrels.
European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 14.5 points, or 0.24%, to 5,965.1. Germany's DAX index rose 27.6 points, or 0.47%, to 5,898.48. In Paris, the CAC 40 index gained 10.77 points, or 0.21%, to 5,127.93.
Asian markets finished higher. Japan's Nikkei 225 index rose 80.68 points, or 0.5%, to 16,319.04. In Hong Kong, the Hang Seng index climbed 200.6 points, or 1.29%, to 15,720.36. Korea's Kospi index added 7.68 points, or 0.58%, to 1,333.98.
Treasury yields ticked higher after the New York Fed's index, then pared gains following the Fed's Beige Book report. Prices for 10-year Treasury notes closed lower at 98-08/32 with a yield of 4.72%, while 30-year bonds fell to 96-02/32 for a yield of 4.75%. The short-covering rally Tuesday failed to attract follow-through buying or shake the underlying sentiment that interest rates have higher to go, says S&P MarketScope.