Stocks Rise on Hopes of Fed Action

Last updated 4:46 p.m. ET

Stocks rose moderately Monday on growing expectations that the Federal Reserve will take steps to boost the economy and possibly send inflation climbing as well.

A falling dollar that contributed to a jump in commodity prices also helped push the Dow Jones industrial average up 31 points.

Traders are widely expecting the Fed to expand its program to buy bonds as a way to stimulate the economy. That would push bond yields down and in turn, would make stocks a more attractive investment.

Bank of America Corp. and JPMorgan Chase & Co. each fell more than 1.5 percent, as the banks again faced questions into how they and other financial companies have handled foreclosures. The financial industry joined utilities as the only two segments of the Standard and Poor's 500 index to lose ground.

For the second time in the past week, the Dow eclipsed its highest closing level this year only to quickly pullback. It closed at 11,205.03 on April 26. The average rose 31.49, or 0.3 percent, to 11,164.05. The broader Standard and Poor's 500 index rose 2.54, or 0.2 percent, to 1,185.62, while the technology-focused Nasdaq composite index rose 11.46, or 0.5 percent, to 2,490.85.

The National Association of Realtors said sales of previously occupied homes rose 10 percent last month. However, sales remain extremely weak compared with where they were just a year ago, which is likely keeping enthusiasm over the news in check.

Shaun Ahmad, president of capital markets at mortgage investment firm RoundPoint Financial Group, said any time sales jump more than expected, it is a positive sign for the housing market.

However, he added, expectations are very low right now and "there's a significant housing overhang." Home sales won't climb back to more historical levels until a large inventory of homes can be sold, Ahmad said.

The dollar fell against other major currencies. It hit a fresh 15-year low against Japan's yen. The euro again climbed above $1.40 early in the day before sliding back slightly below that level in late trading.

Global finance ministers met over the weekend and agreed to avoid competitive devaluations of their currencies, but they didn't lay out specific guidelines. There has been growing concerns that countries would artificially drive the value of their currencies lower. Weakening a national currency can help a country boost exports because goods become cheaper overseas.

Right now, a weaker dollar could help U.S. companies at the expense of foreign economies.

"Our ability to export is strengthened," Cameron Short, a senior vice president at Stifel Nicolaus, said about the weakening dollar. That could help U.S. companies with future sales, boosting their profitability.
While a weaker currency can lift a country's economic growth, it also creates imbalances in global trade. That can lead to protectionist responses from other countries, threatening to slow or halt a broader global economic recovery.

Leaders from the countries whose finance ministers met over the weekend gather next month. More details about how countries can work together to avoid a currency war could be worked out then.

Other economic reports could further sway trading throughout the week, culminating with the government's first estimate on third-quarter gross domestic product. The report, the broadest measure of the nation's economy, is due out Friday.