Fed's Move to Buy Bonds Lifts Markets

U.S. stocks posted the first back-to-back weekly rally of the year after the Federal Reserve said it would buy $1 trillion in bonds and after a report showed home construction snapped the longest streak of declines in 18 years.

The Standard & Poor's 500-stock index pared the gain Friday after analysts cut profit forecasts for General Electric.

Dynegy led an 8.2 percent weekly gain for utility stocks, whose dividends attracted investors after the Fed's action pushed Treasury yields down the most in four decades. Sun Microsystems jumped a record 69 percent, to $8.10. IBM entered talks to buy the company, according to people familiar with the situation.

"The Fed's action helped," said Russ Koesterich, head of investment strategy at Barclays Global Investors in San Francisco. "They're willing to use all the instruments in their arsenal and be aggressive."

The S&P climbed 1.6 percent for the week, to 768.54, up 14 percent from a 12-year low of 676.53 on March 9. The Dow Jones industrial average rose 0.75 percent, to 7278.38. The Nasdaq composite index advanced 1.8 percent, to 1457.27. The Russell 2000 index of small companies increased 1.8 percent, to 400.11.
The S&P 500 Utilities Index had the steepest advance in its 19-year history. Dynegy, the Houston-based power producer, jumped 44 percent, to $1.74, for the fifth-largest gain among S&P 500 companies. The utility gauge's average dividend yield is 5.1 percent, the third highest among 10 industries in the S&P 500. That's almost double the yield on 10-year Treasury notes, which dropped 26 basis points to 2.63 percent.

February housing starts rose to 583,000 homes at an annual rate, a 22 percent increase from January that was propelled by a surge in condominium, apartment and townhouse sales, according to a Commerce Department report.

The Treasury will auction $30 billion of three-month bills and $29 billion of six-month bills tomorrow. They yielded 0.2 percent and 0.4 percent, respectively, in when-issued trading. The Treasury will sell $40 billion of two-year notes Tuesday, $32 billion of five-year notes on Wednesday, and $22 billion of seven-year notes on Thursday. Two-year notes yielded 0.9 percent, five-year notes yielded 1.69 percent and seven-year notes yielded 1.9 percent in when-issued trading.