Markets Rally as More Signs of Economic Optimism Emerge

After two days of losses, investors waded back into the market Wednesday, pushing the indexes near their highest levels this year following signs from the Federal Reserve that the economy, while weak, is on the mend.

The financial and technology sectors received the biggest lift as traders picked up stocks they regarded as cheap.

The Dow Jones industrial average of 30 blue-chip stocks was up 1.30 percent, or 120.16 points, to 9361.61, while the broader Standard & Poor's 500-stock index rose 1.15 percent, or 11.46 points, to 1005.81. The tech-heavy Nasdaq gained 1.47 percent, or 28.99 points, to close at 1998.72.

Investors were largely reacting to a Federal Reserve decision to keep its target for short-term interest rates near zero and to end a program to buy $300 billion worth of Treasury securities by the end of October. The Fed's actions were not a surprise, but reinforced sentiment that the recession is nearly over, analysts said.

"The Fed statement didn't disappoint," said Peter Cardillo, chief market economist with Avalon Partners in New York. "Things have improved, and the economy is probably pulling out of the recession."

Still, the central bank is being careful not to withdraw too much economic support too soon, said Doug Roberts, chief investment strategist for New Jersey-based Channel Capital Research. "They believe the economy is still pretty weak," he said.

Also helping stocks Wednesday afternoon was some positive economic news. The U.S. trade deficit widened less than analysts had expected to $27 billion in June, compared with $26 billion in May. The increase was largely due to the higher cost of oil imports, analysts said, and the data showed that demand for American-made goods is starting to pick up.

A better-than-expected earnings report from Toll Brothers also reinforced optimism about the housing sector. The large builder reported that although revenue fell in its fiscal third quarter for the first time since the end of 2005, there was an increase in the number of contracts signed. "Although our industry continues to face significant challenges, we are encouraged," Robert I. Toll, chairman and chief executive, said in a statement.

The company's stock increased 14.36 percent to $23.42 a share.

The National Association of Realtors released data Wednesday showing that existing home sales are rising throughout the country as borrowers pounce on steep price declines. Sales of existing homes rose 3.8 percent in the second quarter from the first quarter, the industry group said. Sales were down 2.9 percent from a year earlier.

States including Idaho, Hawaii and New York saw sales jump by double digits in the second quarter. In the Washington region, the sales rebound was most pronounced in the District and Maryland. Sales were up 5.6 percent from the previous quarter in the District and 4.4 percent in Maryland. But sales in Virginia remained sluggish, falling 1.4 percent.

Still, foreclosures continue to weigh on the market and bring down prices. Median home prices fell 15.6 percent, to $174,100, in the second quarter compared with a year earlier. That was the largest price drop since NAR began collecting the data in 1979. In the Washington region, prices were down 14 percent.