Dow Jones hits five-year high in light trading

THE DOW Jones Industrial Average closed at the highest level in nearly five years yesterday in a lightly traded session before key decisions in Germany and the United States that could give markets a further boost.

Energy, industrial and financial firms led the advance. Contributing to gains by the Dow, shares of IBM rose 1.15 per cent. Heavy equipment manufacturer Caterpillar added 1.72 per cent to $88.60.

Equities have rallied in recent weeks on hopes for monetary stimulus by central banks. The Federal Reserve could announce tomorrow additional steps to support low interest rates. Today, Germany’s highest court will decide on the legality of the Eurozone’s new bailout fund.

The Nasdaq erased most of its gains in the afternoon as shares of Apple dropped in heavy volume. The stock slipped 0.32 per cent to $660.59 ahead of a new product launch this evening.

Economists forecast a 60 per cent chance the US central bank will announce another round of quantitative easing at the end of its two-day meeting. Disappointing US August jobs data released last Friday bolstered that view.

“I do expect the Fed to [announce] an additional quantitative easing programme. I don't think it's a good idea. I don't think it’s warranted,” said Jamie Cox, managing partner of Harris Financial Group.

Some investors have concerns that a lot of the good news has already been priced in, exposing markets to a decline should the Fed disappoint. They also argue that the Fed’s actions have already distorted market prices.

“We’re in a technically overbought situation, so those traders are going to take their profits going into the Fed meeting,” Cox said.

The Dow ended up 69.07 points, or 0.52 per cent, to 13,323.36. The Standard & Poor’s 500 Index closed up 4.48 points, or 0.31 per cent, to 1,433.56. The Nasdaq Composite Index gained 0.50 point, or 0.02 per cent, to 3,104.53.

Investors are keeping an eye on big-cap bellwether technology names because of their role in global business spending. Techs fell on Monday following Intel’s warning last week that reduced demand will hurt its third-quarter results. Shares were up 0.34 per cent yesterday.

Shares of Bank of America rallied 5.24 per cent to $9.03, leading bank stocks higher.

Knight Capital said it has hired IBM to look into the 1 August trading glitch that cost the trading firm $440m. The stock rose 1.12 per cent.