Stocks keep riding high

NEW YORK (CNNMoney.com) -- Major indexes remained sharply higher in midday trading Wednesday, with the Dow industrials climbing as much as 250 points, after a Federal Reserve governor implied that more interest rate cuts could be on the way.

The Dow Jones industrial average (Charts) rose 2 percent 2-1/2 hours into the session.

The tech-fueled Nasdaq (Charts) helped lead the advance, gaining about 2.4 percent, while the broader S&P 500 index (Charts) climbed 2.1 percent.

Federal Reserve Vice Chairman Donald Kohn said in a speech to the Council on Foreign Relations that current financial conditions could warrant "offsetting" policy moves from the central bank, leaving the door open to more interest rate cuts.

He said that the central bank needs to be "nimble" and that it can't risk a threat to the economy just to teach speculators a lesson.

Wall Street cheered the news, building on Tuesday's advance, as investors bet that it is more likely now that the central bank will cut interest rates by at least a quarter-point when it meets on Dec. 11. The fed funds rate, a key bank lending rate, stands at 4.5 percent.

"Now that the market has realized that, it's one of the reasons we are coming back so strongly," said Donald Selkin, director of equity research at Joseph Stevens.

Also helping to propel the morning rally were financial stocks, which were broadly higher. Citigroup (Charts, Fortune 500), Goldman Sachs (Charts, Fortune 500), Merrill Lynch (Charts, Fortune 500) and Morgan Stanley (Charts, Fortune 500) were among the bank stocks bouncing.

Financial sector strength and bets that the Fed will act helped offset the latest woes for the economy and financial sector.

Existing new home sales in October fell to an all-time low in October, according to the latest reading from the National Association of Realtors. (Full story).

An earlier report showed a bigger-than-expected drop in durable goods orders in October. The Fed's Beige Book of economic conditions is due out at 2 p.m. ET.

Meanwhile, Wells Fargo (Charts, Fortune 500) said late Tuesday that it would take a $1.4 billion hit in the fourth quarter for loan losses related to home equity loans. However, investors sent the stock 4 percent higher Wednesday, perhaps on relief that the hit wasn't bigger.

Investors also sent Freddie Mac (Charts, Fortune 500) higher, even after it cut its dividend in half and said it would sell $6 billion of stock to bolster its finances in anticipation of additional losses. The mortgage finance firm last week announced a $2 billion loss.

Market breadth was positive. On the New York Stock Exchange, winners beat losers five to one on volume of 658 million shares. On the Nasdaq, advancers topped decliners by nearly four to one as 1.04 billion shares exchanged hands.

Treasury prices tumbled for a second session, as investors continued to take profits after Monday's big rally, pushing the corresponding yields higher. The 10-year note yield rose to 3.98 percent from 3.94 percent late Tuesday.

In currency trading, the dollar gained versus the euro and yen.

COMEX gold for February delivery tumbled $15.70 to $805.50 an ounce, falling along with other dollar-traded commodities.

Oil prices trimmed gains after the weekly inventory report showed a smaller-than-expected dip in crude oil and distillate supplies. Oil prices plunged more than $3 Tuesday on growing expectations for OPEC to boost production.

Light, sweet crude for January delivery lost $2.51 to $91.91 a barrel midday Wednesday on the New York Mercantile Exchange.

In global trade, most markets in Asia finished the session lower, while European stocks advanced in late afternoon trading.