By Ryan Vlastelica
NEW YORK (Reuters) - Stocks advanced for a second straight day on Tuesday as investors bet the Federal Reserve would temper statements which were interpreted to mean a sooner-than-expected winding down of stimulus efforts.
Strong market breadth showed an increased appetite for equities, but trading volume was light, a sign that many market participants were taking a wait-and-see attitude.
The Fed's two-day policy meeting started Tuesday, and traders are trying to guess its timeline for scaling back purchases of $85 billion per month of bonds. The policy, known as quantitative easing, has helped fuel stocks' rally, taking major indexes to record levels. The S&P is about 1 percent away from its all-time closing high.
The Fed has said its goal is to target its benchmark interest rate near zero to lower the unemployment rate to 6.5 percent as long as inflation stays below 2.5 percent.
A policy statement from the central bank will be released Wednesday, and investors expect the current level of purchases will be maintained despite strong recent data pointing to improvements in the economy. Fed Chairman Ben Bernanke recently said the program would be wound down when the economy is strong enough, causing a surge of volatility in financial markets.
"Stocks are higher as investors adjust to the fact that not only will the Fed not announce tapering tomorrow, but that the economy is quite capable of growing without it," said David Kelly, the chief global strategist for JPMorgan Funds in New York, which has about $400 billion in assets under management.
"There are reasons to be cautious and uncertain, but the market is still cheap and should continue to expand for a long time," he said, adding that he was overweight on cyclical groups, whose fortunes are especially tied to the pace of growth.
The Dow Jones industrial average <.DJI> was up 138.38 points, or 0.91 percent, at 15,318.23. The Standard & Poor's 500 Index <.SPX> was up 12.76 points, or 0.78 percent, at 1,651.80. The Nasdaq Composite Index <.IXIC> was up 30.05 points, or 0.87 percent, at 3,482.18.
About two-thirds of companies traded on both the New York Stock Exchange and Nasdaq rose, with both exchanges seeing more than 150 securities hit 52-week highs, including 3M Co
About 5.43 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.36 billion shares.
The S&P 500 is forecast to end 2013 at 1,700, according to the median forecast from 42 analysts surveyed by Reuters in the past week. That 19 percent gain for 2013 would mark the best year since 2009.
The market has been volatile since Bernanke said on May 22 the Fed could begin to trim its stimulus in the "next few meetings" if the economy gains momentum and inflation remains moderate. Intraday swings have widened and the CBOE Volatility index <.VIX>, a measure of investor anxiety, is up 31 percent so far this quarter.
Consumer prices rose slightly last month, the government said on Tuesday, giving the deflation-wary Fed some respite. The consumer price index, excluding food and energy, advanced 1.7 percent in the 12 months since May, indicating inflation pressures remain subdued.
Shares of Walter Energy Inc
On the downside, Hormel Foods Corp
After the market closed, Adobe Systems Inc
(Editing by Kenneth Barry)