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Dow above 17K, S&P 500 tops key 2000 level

Adam Shell and Jane Onyanga-Omara
USA TODAY

The stock rally on Wall Street picked up steam Thursday as investors focused on the Federal Reserve's continued worries about low inflation after the release of minutes from the Fed's latest policy meeting.

The three major benchmarks, mixed ahead of the 2 p.m. ET release, moved solidly into the black, the Dow ending up 138 points.

Traders work on the floor of the New York Stock Exchange.

"Investors will be dissecting the minutes . . . with a fine-toothed comb," said Karee Venema, an analyst at Schaeffer's Investment Research, before the release.

The Dow Jones industrial average gained 0.8% to finish back above 17,000 at 17,050.75. The Standard & Poor's 500 index finished up 0.9% and broke above the key 2000 mark. The Nasdaq composite index — negative for all of the morning and gradually climbing after the Fed news — ended 0.4% higher.

Fed minutes: Officials still expect rate hike this year

The Dow and S&P 500 had earlier saw-toothed above and below the break-even mark.

But after reviewing the Fed minutes, in which the central bank said it was still worried about low inflation readings, stocks rallied as the odds for an interest rate hike this year shrank some more. Wall Street was also emboldened by signs that the Fed decision to hold off on rate hikes last month was not as close of a call as originally feared, another sign that hikes might not come until next year.

"The minutes were more friendly than the Street was expecting," Steven Ricchiuto, chief economist at Mizuho Securities USA told clients in a report. "The market wanted the minutes to suggest that the decision to pass in September was a close call. Instead, the minutes show that the tone of the press conference fully reflected the Committees view. The key was the word prudent."

Paul Ashworth, an economicst at Capital Economics, says the Fed is likely to wait until March 2016 before raising interest rates, citing a spate of weak economic reports as adding to Fed fears about the global economy due to the China slowdown. Fresh political risks could give the Fed another reason to be patient before hiking rates, he added.

"If anything, those reports will have amplified the fears that officials had in mid-September," Ashworth wrote. "The growing debacle surrounding the election of a new Republican House Speaker and the potential crisis if Congress doesn't raise the debt ceiling within the next month are additional risks that have sprung up in the past couple of weeks. Accordingly, we now expect the Fed to wait until early 2016 before beginning to raise interest rates."

U.S. stocks, which have rallied sharply off their August lows, are still grappling with the aftermath and uncertainty caused by the market's first 10% price correction in four years. Wall Street is trying to gauge whether the recent rally signals the current selling has been exhausted and whether the uptrend that has been in place for 6 1/2 years is ready to resume.

The upcoming third-quarter earnings season, which unofficially kicks off today after the closing bell when aluminum giant Alcoa (AA) reports results, could be a key to the market's next move.

"Equities appear to be at the crossroads of near-term uncertainty and longer-term appeal," Terry Sandven, chief equity strategist at U.S. Bank Wealth Management told clients in a report. "Whether the current market uncertainty and lackluster returns merely reflect a soft patch in an ongoing bull market or the start of a bear trend will likely depend on the future pace of global growth and company earnings."

The S&P 500 is now trying to climb back above the key 2000 level, a price level that is now viewed by many Wall Street chart-watchers as a key ceiling, that if broken to the upside would provide additional proof that the market low hit in late August has been successfully re-tested, and that the uptrend is back in force.

Chinese stocks jumped 3% Thursday after markets reopened following a week-long holiday. The "rally is partly driven by the positive economic data released over the break, such as a slightly better than expected official manufacturing" index, said Gerry Alfonso, trading director at Shenwan Hongyuan Securities in Beijing.

Other Asian markets were lackluster — Japan's Nikkei 225 index fell 1 % while Hong Kong's Hang Seng index dropped 0.7%.

European markets were mixed as Germany's DAX index rose 0.2% and France's CAC 40 was up 0.2%. London's FTSE 100 index gained 0.6%.

U.S. stocks rose Wednesday, with the S&P 500 nearing the 2000 mark and the Dow gaining 122 points.

Contributing: Associated Press

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