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With the commencement of the Federal Open Market Committee’s two-day meeting, investors were once again hopeful about fresh monetary stimulus which guided the benchmarks into the green. Encouraging housing data helped add to the gains and while the Dow returned to its winning ways, the S&P 500 registered its fourth-straight day of gains. However, markets dropped from the day’s highs after a German official rubbished reports that rescue funds would be used to purchase bonds of troubled nations.

The Dow Jones Industrial Average (DJI) gained 0.8% to finish 95.51 points higher at 12,837.33. The Standard & Poor 500 (S&P 500) inched up a percent to close yesterday’s trading session at 1,357.98. The tech-laden Nasdaq Composite Index outperformed the fellow benchmarks for the second-consecutive day as it jumped 1.2% to end at 2,929.76. The fear-gauge CBOE Volatility Index edged up by only 0.3% to settle at 18.38. Consolidated volumes on the York Stock Exchange, the Nasdaq and the American Stock Exchange were 6.7 billion shares, lower than last year's daily average of 7.84 billion. The advancing stocks far outnumbered the decliners on the NYSE; as for five stocks that gained, only one stock moved lower.

Investors have often been hopeful about fresh monetary stimulus, but time and again their hopes have been dashed as the central bank never launched the third round of bond purchases. However, this time, investors are again optimistic and their hopes are backed by certain recent developments. A couple of weeks ago, Chicago Federal Reserve Bank President Charles Evans and the Atlanta and San Francisco Fed presidents had talked about injecting more liquidity into the system. However, Fed Chairman Ben Bernanke dampened the mood somewhat as he did not say anything definite on monetary policy during his last congressional testimony. Moreover, with economic readings being largely dismal and European concerns proving to be a constant bother, the case for implementing monetary policy gets stronger.

Additionally, investors have also drawn optimism from hints that central banks across the globe would join hands to ‘stabilize’ the flagging financial situation. These signals have buoyed benchmarks over the past few sessions, often negating the impact of Euro debt woes. With the commencement of the Fed’s two-day summit yesterday, investors’ hopes further intensified as they wait anxiously to for a positive announcement on Wednesday. Market onlookers were also of the view that the central bank might extend ‘Operation Twist’. The, Fed had announced the economic stimulus package termed ‘Operation Twist’ in September last year.

While such hopes helped benchmarks keep afloat in positive territory, the U.S. Department of Housing and Urban Development further lifted sentiment with positive data on building permits. According to the report: “Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 780,000. This is 7.9 percent (±1.0%) above the revised April rate of 723,000 and is 25.0 percent (±1.5%) above the May 2011 estimate of 624,000”. The reported figures were also significantly higher than consensus estimates of 723,000. However, housing starts numbers were weak, dropping 4.8% from April to seasonally adjusted annual rate of 708,000 in May.

Coming to housing stocks, the PHLX Housing Sector (HGX) jumped 1.2% and the SPDR S&P Homebuilders (XHB) gained 1.1%. Among the gainers, The Home Depot, Inc. (NYSE:HD), Toll Brothers Inc. (NYSE:TOL), PulteGroup, Inc. (NYSE:PHM), DR Horton Inc. (NYSE:DHI) and Beazer Homes USA Inc. (NYSE:BZH) added 1.2%, 1.5%, 3.0%, 1.3% and 5.2%, respectively.

The benchmarks did end sufficiently higher yesterday, but they slipped from their day’s highs following discouraging comments from a German official. The Group of 20 is meeting at summit and investors had hoped for key decisions to emerge from it. The British media had earlier reported that Angela Merkel, Chancellor of Germany, might give in to the idea of using the European Financial Stability Facility and the European Stability Mechanism to buy bonds of troubled European nations. However, such claims were later rubbished by a German government official after he told Reuters that "There was no discussion here in Los Cabos about any concrete initiatives" related to bond purchases.

Though some of the gains evaporated, financials ended significantly higher. The Financial Select Sector SPDR (XLF) jumped 1.7% and key stocks including American Express Company (NYSE:AXP), Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS) gained 2.0%, 4.5%, 3.5% and 2.9%, respectively.

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