Wall Street pauses ahead of Fed rates

US stocks rose yesterday in the quietest session of the year on speculation that the Federal Reserve would signal potential steps to boost the sluggish economic recovery.

Volume was a mere 5.71bn shares, compared with last year's estimated daily volume of 9.65bn shares, as investors were wary of taking new positions before the Fed's statement today.

The Dow Jones industrial average was up 45.19 points, or 0.42 per cent, at 10,698.75. The Standard & Poor's 500 Index was up 6.15 points, or 0.55 per cent, at 1,127.79. The Nasdaq Composite Index was up 17.22 points, or 0.75 per cent, at 2,305.69.

“We're expecting the Fed to officially lay the groundwork for a policy change predicated on another month of economic data,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

The central bank could resume purchases of certain debt securities to lower interest rates to encourage borrowing. It could also halt payment of interest on banks’ excess reserves to encourage lending.

Stocks have generally reacted well on Fed days since the zero-interest rate policy was put in place in December 2008. The S&P 500 is up 85 per cent of those days, with average gains of 1.18 per cent, according to Bespoke Investment Group.

But Bespoke wrote that because the Fed is expected to make changes in its comments, “trading following tomorrow’s statement could prove to be more volatile than recent announcements”.

Hewlett-Packard was by far the top drag on the Dow yesterday, tumbling 8 per cent to $42.60 after chief executive Mark Hurd resigned late on Friday. The news of his resignation, following an investigation into sexual harassment charges by a female contractor, sent the company’s shares down 10 per cent in extended trade on Friday.

McDonald’s hit a lifetime high at $73.33 after it reported July sales data that was stronger than expected, though the stock later pared gains to end at $72.92, up 1.6 per cent.

The Nasdaq got a boost from Research in Motion, whose US-listed shares rose 3.5 per cent to $55.31.