Stocks move modestly higher as investors await Federal Reserve announcement

Stocks modestly higher ahead of Fed decision

NEW YORK — Stocks moved modestly higher in early morning trading Wednesday, ahead of the Federal Reserve’s interest rate announcement, a day after the market posted its biggest losses in five weeks.

Overseas, Asian markets fell amid new worries about the speed of economic recovery in China, while European markets were higher.

U.S. investors have put a summer rally on hold as they search for fresh signs the economy is strengthening and pulling out of recession. The latest assessment on how the economy is faring will come from the Fed, which ends a two-day meeting Wednesday afternoon with its rate decision and an assessment of the economy.

“Everything still starts and stops with the Fed,” said Larry Rosenthal, president at Financial Planning Services in Manassas, Va.

It is widely expected that the central bank will hold the federal funds rate near zero percent. What investors are uncertain about it how the Fed will size up the economy — whether it sees further signs of strengthening that would justify the gains in stocks since summer. Investors have bid stocks higher on the belief that the economy was pulling out of recession.

Rosenthal said investors also want to see what the Fed says about inflation. Fears of inflation due to an increase in government spending could force the Fed to raise interest rates. That, in turn, could slow down any economic recovery.

The Dow Jones industrial average rose 31.89, or 0.4 percent, to 9,273.34. The Standard & Poor’s 500 index rose 3.41, or 0.3 percent, to 997.76, while the Nasdaq composite index gained 10.10, or 0.5 percent, to 1,979.83.

A new report showing the nation’s trade deficit edged up less than expected in June had little effect on trading. The Commerce Department said the deficit increased to $27 billion from $26 billion in May, which was the lowest level since November 1999.

Economists polled by Thomson Reuters had expected the deficit to increase to $28.5 billion.

In corporate news, Macy’s Inc. reported a better-than-expected second-quarter profit. The retailer is also raising its outlook amid benefits from reducing costs.

The market is looking to bounce back a day after posting its biggest loss in five weeks. The Dow fell 1 percent on Tuesday, while the S&P dropped 1.3 percent.

With little new economic or earnings data to spur stocks higher, investors paused in their recent buying to book some gains. Uncertainty surrounding the Fed’s meeting also led investors to step to the sidelines.