Stocks posted modest gains Tuesday amid speculation that the Federal Reserve will act to stimulate the economy.
The Standard & Poor's 500 added 4.48 points, or 0.3%, to 1433.56. The Dow Jones industrial average added 69.07 points, or 0.5%, to 13,323.36. The Nasdaq composite index climbed 0.51 points, or less than 0.1%, to 3104.53
"The market is anticipating that there will be some stimulus move on the part of the Fed," says John Praveen, chief investment strategist at Prudential International Investments Advisers. "The market is grinding higher on liquidity because of what central banks have done and on hopes of further stimulus from the Fed and positive moves from European policymakers."
The S&P 500 has risen 14.0% this year and is 8.4% below its record closing high. The U.S. benchmark fell 0.6% from a multiyear high on Monday as concern Greece's debt crisis will worsen overshadowed speculation that central banks will take steps to support the global economy.
Stocks rallied Tuesday ahead of a two-day meeting starting today in which the Federal Open Market Committee will discuss additional measures to stimulate the U.S. economy. Fed Chairman Ben Bernanke said on Aug. 31 he wouldn't rule out steps to lower an unemployment rate he described as a "grave concern."
The Commerce Department on Tuesday said that the U.S. trade deficit widened in July for the first time in four months as the global economic slowdown reduced demand for American-made goods. The National Federation of Independent Business' optimism index rose last month to 92.9 from a nine-month low of 91.2 in July, indicating confidence among small businesses in the U.S. climbed in August as more companies anticipated a pickup in hiring and sales. U.S. stocks also rose as Germany's Federal Constitutional Court said it will issue a ruling today on whether to allow the country to ratify the 500 billion euro ($640 billion) European Stability Mechanism.
Moody's Investors Service, which placed a negative outlook on the U.S.' Aaa grade in August, said in a statement Tuesday that the rating would likely be cut to Aa1 if negotiations between lawmakers fail to produce policies that reduce the percentage of debt to gross domestic product.
David Kostin, chief equity strategist at Goldman Sachs, said Monday that a deal to head off automatic tax increases and spending cuts at the start of next year may be "messy" and could hurt stocks. The so-called fiscal cliff "is unlikely to be resolved in a smooth fashion, and probably will be resolved in a messy way," he said.
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