NEW YORK, (Reuters) – U.S. stocks clawed back most of Monday’s losses as a U.S. Federal Reserve promise of at least two more years of near-zero interest rates overshadowed its warning about slowing economic growth.
The Fed’s statement gave markets a glimmer of hope, with stocks’ gains accelerating into today’s close.
In a sign investors were not entirely convinced of the Fed’s ability to stave off another recession, they sought safer bets, including the Swiss franc and gold. Gold pared its early gain to record levels but was still up about 1 percent at just above $1,728 an ounce.
But Wall Street still almost reversed yesterday’s meltdown — the steepest fall in nearly three years. However, the S&P 500 is down 14 percent from its April peak, with the bulk of selling coming after a downgrade to U.S. debt and festering concern about the euro zone’s inability to solve its own persistent credit problems.
MSCI’s all-country world stock index rose 2.1 percent.
Short-term Treasury bond yields hit record lows as investors speculated that the central bank would soon return to the bond market, little more than a month after the end of its last big program of purchases.
The Fed said it would keep its existing monetary stimulus on track and offered a long two-year timeframe for rates to stay low. Although it offered no new monetary initiatives, it said it was prepared to do more if necessary.
“It’s basically giving more credence to the fact that they are going to be accommodative for a much longer period of time, which in general has been a positive for equities,” said Mohannad Aama, managing director at Beam Capital Management LLC, a hedge fund in New York.