Markets applaud announcement of Fed tapering

NEW YORK — U.S. stocks rose in volatile trading on Wednesday after the Federal Reserve announced plans to trim its stimulus program, though it said its key interest rate would stay lower for even longer than previously promised.Canada’s main stock index also extended its gains. The Toronto Stock Exchange’s S&P/TSX composite index was up 153.03 points, or 1.2%, at 13,333.19 in mid-afternoon trade.Equities initially plunged after the release of the statement, but quickly rebounded and turned positive, with major indexes advancing to session highs. The CBOE Volatility index VIX slumped 9.8%.The central bank said it would reduce its monthly asset purchases by US$10 billion to total US$75 billion. The move is a nod to better prospects for the economy and labor market.“I think people were prepared for this, and I think they are relieved that the Fed is starting. No one wanted this 800-pound gorilla in the market,” said Wayne Kaufman, chief market analyst at Rockwell Securities in New York.While many had expected the program to continue at its previous pace into next year, the Fed had said it would begin to slow it when certain economic indicators met its targets. Strong data recently seemed to suggest that the timeline could be pushed up. Still, a survey of fund managers by Bank of America Merrill Lynch released on Tuesday revealed that only 11% of those polled expected a taper this week.The Dow Jones industrial average was up 122.78 points, or 0.77%, at 15,998.04. The Standard & Poor’s 500 Index was up 7.76 points, or 0.44%, at 1,788.76. The Nasdaq Composite Index was down 1.45 points, or 0.04%, at 4,022.23.Despite the gains, equities have recently been pressured by concerns about changes in monetary policy. The S&P posted its worst week since August last week. Rockwell’s Kaufman said the recent weakness was a reason markets advanced following the statement.Gains in the Nasdaq were limited by Jabil Circuit Inc , which tumbled 21.5% to US$15.49 a day after forecasting current-quarter results way below Wall Street estimates. The outlook weighed on other companies in the technology space, including Apple Inc, which fell 2.2% to US$542.66.Data on Wednesday showed U.S. housing starts surged to the highest in nearly six years in November, a sign of strength in the housing market.Lennar Corp rose 2.9% to US$36.21 after the No. 3 U.S. homebuilder reported a 32% jump in fourth-quarter profit.Ford shares fell 7.2% to US$15.50 after the carmaker said it expects North American pre-tax profit to be lower in 2014 than in 2013.CVS Caremark said it expects sales and earnings to rise in 2014 even though it anticipated only a “modest” benefit next year from the launch of the Affordable Care Act, or Obamacare. Shares rose 3.1% to US$68.90.© Thomson Reuters 2013