US stocks: Markets up as Fed may pause rate rises

NEW YORK - US stocks rose today after Federal Reserve Chairman Ben Bernanke said the Fed may pause in its 22-month cycle of raising borrowing costs, lifting shares of interest-rate sensitive companies such as banks and utilities.

Shares of Bank of America Corp. and JPMorgan Chase & Co., the No. 2 and No. 3 US banks, respectively, climbed to fresh 52-week highs in New York Stock Exchange trading during the session and the Dow Jones industrial average hit a six-year high.

Investors piled into growth stocks, which can benefit from friendlier interest-rate environments, at one point sending the Nasdaq Composite index up more than 1 per cent.

"One of the things the market took from Bernanke's comments today was the strong possibility that the pause is coming," said Anthony Chan, chief economist at J.P. Morgan Private Client Services.

The Dow Jones industrial average was up 28.02 points, or 0.25 per cent, at 11,382.51, after earlier hitting a session high at 11,416.93. The Standard & Poor's 500 Index was up 4.31 points, or 0.33 per cent, at 1,309.72. The Nasdaq Composite Index was up 11.32 points, or 0.49 per cent, at 2,344.95.

"So why don't we get a 100-point or 200-point day? Because this is a pause, not an end to the Fed tightening," Chan added.

Stocks had opened lower after China's central bank raised the benchmark one-year lending rate. The action prompted concerns that slower growth in the world's most populous country could hurt US companies with sales to China such as heavy equipment maker Caterpillar Inc. and airplane maker Boeing Co.

Caterpillar shares were down 1.2 per cent, or 89 cents, to US$75.06 and Boeing shares slid 1 per cent, or 81 cents, to US$84.10.

The China news also sent commodity prices lower, including those of aluminum, which in turn pulled shares of the world's No. 1 aluminum producer, Alcoa Inc., down 4.5 per cent, or US$1.56, to US$33.40 on the NYSE. Alcoa was the biggest drag on the Dow, paring the index's gains for the day.

Stocks climbed after Bernanke told the Joint Economic Committee of Congress that Fed policy makers could at some point pause in raising interest rates to assess the economy's outlook.

The S&P Utilities sector index rose 1.3 per cent, imitating a rise in the bond market after Bernanke's rate comment. Utilities trade much like bonds because of their high dividend yields.

Shares of American International Group Inc., the world's largest insurer by market value, followed other rate-sensitive stocks higher. AIG advanced 1.4 per cent, 90 cents, to US$64.94 and was among the stocks giving the biggest lift to the Dow.

But the Russell 2000 index of small-cap stocks, which has outperformed the rest of the market for at least five years, fell 0.5 per cent to 761.40.

Bank of America's stock ended up 2.8 per cent, or US$1.33, at US$49.04 on the NYSE -- just slightly below a new 52-week high at US$49.18 hit earlier in the day. JPMorgan shares gained 3 per cent, or US$1.29, to end at US$43.95, just below a fresh 52-week high at US$44.06 reached during the session.

Stock investors have been worried the Fed would raise interest rates aggressively this year, increasing borrowing costs to a level that might harm corporate profits.

Helping the Nasdaq were shares of cable company Comcast Corp., which jumped 4.3 per cent, or US$1.25, to US$30.45 on stronger-than-expected first-quarter profit.

On the downside, shares of health insurer Aetna Inc. plunged 20.3 per cent, or US$9.43, to US$37 as investors worried its profit margins would suffer as it pays higher prices for medical procedures while competing aggressively in pricing to win market share from rivals.

The Morgan Stanley Healthcare Payor index of HMO stocks fell 5.9 per cent to its lowest point in 9 months.

- REUTERS