U.S. Stocks Rise on ECB Stimulus Hopes

By Saumya Vaishampayan 

U.S. stocks ended higher on Wednesday as investors looked ahead to Thursday's policy-setting meeting by the European Central Bank.

Reports that the ECB was considering a new stimulus package that largely met investor expectations gave stocks a boost earlier in the session. Investors are now looking to see if the ECB will decide to take a more aggressive stance at Thursday's meeting.

Also giving support to stocks was a rise in oil prices, traders said.

The Dow Jones Industrial Average rose 39.05 points, or 0.2%, to 17554.28.

The S&P 500 gained 9.57 points, or 0.5%, to 2032.12. The Nasdaq Composite Index advanced 12.58 points, or 0.3%, to 4667.42.

Stocks swung throughout the session, with the Dow trading in a roughly 204-point range.

"We get all worked up about a 100-point move in the Dow these days because in the last five years we've had a calm, complacent market," said Viren Chandrasoma, managing director of equity trading at Credit Suisse Group AG.

"In the last few months, you've seen not crazy volatility but more of a return to normal," he added.

A proposal from the ECB's executive board calls for bond purchases of about EUR50 billion ($58 billion) a month that would last for a minimum of one year, The Wall Street Journal reported. The proposal suggests bond purchases could amount to at least EUR600 billion, in line with forecasts that have recently centered on a figure of around EUR500 billion or higher.

Justin Wiggs, a trader at Stifel Nicolaus, said there was a significant amount of interest in buying U.S. stocks after the ECB headlines hit this morning. "We've seen a massive reversal today," he said, referring to the swings in stocks.

European stocks closed sharply higher, with Germany's Dax notching a fresh record. The Stoxx Europe 600 rose 0.6% to end at a seven-year high.

Easy monetary policy has helped drive gains in stocks in recent years. Even as the Federal Reserve remains on track to raise interest rates this year, efforts from other major central banks, including the ECB, are likely to keep global interest rates low. And that should continue to lift U.S. stocks, said Aaron Jett, vice president of global equity research at Bel Air Investment Advisors.

By buying bonds, the ECB is effectively saying it "wants investors to take more risk and move into stocks," he said. "The U.S. right now is the growth engine of the global economy," he added, which means it will continue to attract foreign investors.

In corporate news, UnitedHealth Group Inc. said earnings rose 5.8% in its December quarter, beating expectations. Shares gained 3.5%, up the most on the Dow.

International Business Machines Corp. reported further declines in quarterly profit and revenue and issued a profit forecast below Wall Street's expectations. Shares fell 3.1%, weighing on the Dow.

Investors eyed a rebound in oil prices. Crude-oil futures added 2.8% to $47.78 a barrel, boosting shares of energy companies. Energy stocks rose the most on the S&P 500, up 1.8%.

Oil prices have tumbled 55% since June, one of the factors at play as companies report fourth-quarter earnings. Companies have also faced dollar strength and weak economic growth abroad. Going into the fourth-quarter earnings season, analysts surveyed by FactSet had expected earnings growth of 1.1%, the weakest since the third quarter of 2012. Early indications don't look rosy: factoring in 51 companies that have already reported, the S&P 500 is on track to post earnings growth of just 0.36% from a year ago.

"Oil is probably the biggest story," said Bill Stone, chief investment strategist at PNC Wealth Management. "I know that energy earnings are going to be bad. The other side is, do any of the good [effects] of lower oil start showing up?" Mr. Stone noted that Delta Air Lines Inc. 's better-than-expected fourth-quarter results were helped in part by savings on jet fuel.

Demand for haven assets ebbed. Gold futures lost 0.5% to $1287.60 an ounce. The yield on the 10-year Treasury note rose to 1.851%. Yields rise as prices fall.

Write to Saumya Vaishampayan at [e-mail]

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