All eyes on Fed decision

Wall Street put aside its worries over interest rates today and managed a half-hearted rally on the eve of a key Federal Reserve meeting.

While a rate hike was not expected at tomorrow’s meeting, the Fed’s statement after the gathering was expected to be thoroughly dissected by Wall Street.

As the economy continues to grow at a rapid pace, most investors expect a hike by August to combat inflation.

“The Fed is going to telegraph its intentions for the market in its statement tomorrow,” said Keith Keenan, vice president of institutional trading at Wall Street Access.

“I can’t imagine they’d shock the market with a hike tomorrow, but rather they’ll get everyone ready for something in June or August. Overall, I think there’s the potential for a somewhat positive response on the market tomorrow, depending on what they say.”

Nonetheless, with trading volume light and prices falling from their session highs through the afternoon, the bounce from last week’s selling was unlikely to be a signal of an overall turnaround, especially with the markets sensitive to any change in the Fed’s stance.

According to preliminary calculations, the Dow Jones industrial average rose 88.43, or 0.9%, to 10,314.00 after falling 2.4% the previous week.

Broader stock indicators were also higher. The Standard & Poor’s 500 index gained 10.26, or 0.9%, to 1,117.56 after last week’s 2.9% drop. The Nasdaq composite index was up 18.57, or 1%, at 1,938.72 on the heels of a 6.4 percent skid the week before.

The Commerce Department reported that construction spending jumped by 1.5% in March from February to a seasonally adjusted annual rate of 944.1 billion dollars, the highest level on record.

The increase was three times higher than economists expected. However, manufacturing growth slowed slightly in April due to higher costs for materials, according to the Institute for Supply Management’s manufacturing index.

“I don’t think this was so much about the economic data, I think the market was just oversold coming into today,” said Russ Koesterich, US equity strategist at State Street.

“The economic data was good, but not great. With the low volume, this rally is not really convincing.”

Interest rate concerns kept the market down most of April, causing many investors to ignore very strong corporate earnings, analysts said.

“I think we’re seeing good economic numbers, and we’re catching up with some of the earnings numbers that we’ve ignored so far,” said Brian Belski, market strategist at Piper Jaffray. “Institutional investors have been so reactive on rates and economic news, but we’re telling our clients to take a look at the fundamentals, and the fundamentals are sound.”

Advancing issues outnumbered decliners by nearly 3 to 2 on the New York Stock Exchange, where volume came to 1.56 billion shares, compared with 1.63 billion on Friday.

The Russell 2000 index of smaller companies rose 5.67, or 1%, to 565.47.