U.S. stocks rally as yen drops, Treasuries fluctuate before Fed

U.S. stocks climbed for a second day while the yen weakened as investors awaited clues from the Federal Reserve about its plans for monetary stimulus. U.K. and German government bonds dropped while European equities were little changed. The Swiss franc strengthened.

The Standard & Poor’s 500 Index added 0.8% to 1,652.09 as of 3:15 p.m. in New York. The Japanese currency depreciated 0.8% to 95.23 yen per dollar. Britain’s 10- year gilt yield jumped six basis points to 2.14% while the rate on similar-maturity German debt rose five basis points to 1.57% and U.S. Treasury yields were little changed at 2.17%. Nickel and copper retreated, while oil and natural gas advanced.

The Fed starts a two-day policy meeting today, about a month after Chairman Ben S. Bernanke said quantitative easing could be scaled back if the employment outlook showed sustainable improvement. U.S. housing starts rose and the cost of living increased less than forecast in May, reports showed today. European Central Bank President Mario Draghi said policy makers are considering further non-standard monetary-policy tools.

“Everybody’s just waiting to hear what the Fed has to say,” Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co. in Elmira, New York, said by telephone. “If they say they’ll taper sooner rather than later, there’ll be fear in the market and we’ll see a decline for some time in stocks. We’ll need to see the results of tapering. If the economy continues to roll along and grow without as much Fed buying, that will spur us to the next leg up in the bull market.”

Economic Data

The S&P 500 index advanced 0.8% yesterday, when reports showed U.S. manufacturing and homebuilder confidence rose and a British official said Group of Eight leaders see downside risks to the global economy abating. The index has rallied 16% this year and is up 144% from its bear-market low in 2009 amid the Fed’s bond buying program and four straight years of earnings growth.

An S&P index of 11 homebuilders added 0.7%, rebounding from an earlier 1.6% decline. Commerce Department data showed builders broke ground on 914,000 U.S. homes at an annualized rate, up 6.8% while below the the median estimate of 950,000 from 82 economists surveyed by Bloomberg. Another report showed the consumer price index increased 0.1% in May, half the median forecast, after falling 0.4% in April.

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