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Stocks shoot up; all eyes on Fed

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By The Associated Press
Tuesday, Dec. 17, 2013, 12:01 a.m.
 

Stocks broke through a slump and posted strong gains on Monday, powered by two big corporate deals and a report that suggests the economy is getting stronger.

The Dow Jones industrial average is now up two trading days in a row and has reduced some of the losses from last week. It was the first gain in five days for the Standard & Poor's 500 index.

Stocks have turned volatile before a Federal Reserve meeting on Tuesday, as investors bet on whether the central bank will dial back the stimulus that has boosted stock prices this year. All of the big indexes are up more than 20 percent for 2013.

Karyn Cavanaugh, market strategist with ING U.S. Investment Management, said she doesn't expect such large returns next year — maybe more like 10 percent.

“But that's actually good for investor confidence,” she said. “When they see these big huge numbers, I think they look at it with kind of a jaded eye and think, ‘Is that really sustainable? Maybe it's already run its course, so I want to get out.'”

As of 3:30, the Dow was up 134 points, or 0.9 percent, at 15,890, after rising almost 175 points in the morning. The Standard & Poor's 500 index rose 12 points, or 0.7 percent, to 1,787. The Nasdaq composite was higher by 27 points, or 0.7 percent, at 4,028.

Two major deals caught investors' attention: Chipmaker Avago Technologies is buying LSI Corp. for $6.6 billion. Avago was up $4.47, or 10 percent, to $50.12, while LSI rose $3.05, or 39 percent, to $10.97. And AIG is selling its aircraft leasing business for about $5.4 billion to Dutch leasing company AerCap. AIG has been selling major assets after getting a bailout during the financial crisis. Its shares rose 50 cents, or 1 percent, to $50.23.

The Avago-LSI deal helped make tech stocks the biggest gainers among the 10 industries in the S&P 500, all of which rose. Others with gains included computer hard drive makers Western Digital and Seagate, which both benefited from analyst upgrades.

Also Monday, the Federal Reserve said factory production accelerated in November as auto production surged. The gains in manufacturing could help boost economic growth.

Just last week, such positive reports were making investors nervous. That's because they feared that the Fed would think that the economy is doing so well that its $85 billion in monthly bond-buying is no longer needed.

“People are starting to warm to the idea that good news is good news,” said Brad McMillan, chief investment officer for Commonwealth Financial. For a while, investors felt, “'Oh my goodness, we won't be able to survive without Fed support.' But people are actually seeing that things really are getting better.”

The Fed will release a statement and projections for the economy Wednesday. Economists are almost unanimous in believing that the Fed will not begin winding down its stimulus program just yet.

This year's stock rally has been fueled by that stimulus, higher corporate earnings, and a slow but steady recovery in the U.S. economy.

For next year, 39 percent of investors expect the stock market to stay where it is now, 38 percent expected a drop but not a crash, and 20 percent expect stocks to go up, according to a new Associated Press-GfK poll.

On Monday, Energy stocks had the second-biggest gains in the S&P 500, led by Tesoro, which runs refineries and gas stations. It was up $2.11, or 4 percent, at $58.41. Exxon Mobil rose $2.05, or 2 percent, to $97.36 after being upgraded by Goldman Sachs.

The price of oil rose 83 cents to $97.44 in New York because of signals that Europe's economy is on the mend and the closure of export terminals in Libya.

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