Stocks manage gains after Fed

NEW YORK (CNNMoney.com) -- Stocks climbed Wednesday, ending a choppy session higher after the Federal Reserve held interest rates steady and hinted it would continue to do so for the foreseeable future. Meanwhile, Apple introduced its new iPad tablet computer.

The Dow Jones industrial average (INDU) gained 42 points, or 0.4%. The S&P 500 index (SPX) gained 5 points, or 0.5%. The Nasdaq composite (COMP) rose 18 points, or 0.8%.

Stocks churned before and after the Fed statement, with gains in technology, telecom and financial stocks tempered by weakness in industrials and commodities. The bank sector surged, with the KBW Bank (BKX) index rising 2.9%.

Apple's new iPad, a crop of major earnings and a House hearing on the government bailout of AIG were also in focus.

Stocks may have staged the late-session advance in anticipation of President Obama's pending State of the Union address, said Michael Sheldon, chief market strategist at RDM Financial Group.

"Some investors may be looking ahead to a less combative and more constructive speech tonight," Sheldon said. "In addition, the market has also had a pretty sharp downdrift over the last few days."

Following that selloff, investors were perhaps willing to scoop up some of the shares that got pummeled.

Ford Motor (F, Fortune 500) and 3M (MMM, Fortune 500) are both expected to report results before the start of trading. Reports are also due on durable goods orders and weekly jobless claims.

State of the Union: In his address to the nation later Wednesday, President Obama is expected to talk about how the government plans to temper the growing deficit over the next decade, even as it continues to promote economic growth in the aftermath of the recent recession.

Obama rattled Wall Street last week when he called for greater restrictions on the biggest financial firms, including limiting the ability of commercial banks to make high-risk trades and stopping them from owning or investing in hedge funds.

He is not expected to directly address that particular proposal, but his rhetoric on the banking system and the economy will be closely watched by Wall Street.

Federal Reserve: The central bank opted to hold the fed funds rate, a key short-term bank lending rate, at a historic low near zero percent, as had been widely expected.

In the closely watched statement, the bankers offered little new guidance, saying the economy has continued to strengthen since December's meeting and that the pace of the slowdown in the labor market is slowing. However, the statement did not provide any insight as to when the Fed plans to loosen its accommodative policy -- something investors are very focused on.

One notable surprise was that Kansas City Fed president Thomas M. Hoenig disagreed with the group's decision to state that conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

Hoenig, a known inflation hawk, thought that activity was picking up at a pace sufficient to change the language to suggest that rates could rise a little sooner.

The phrase "extended period of time" suggests rates will be held steady for at least six months if not more, said James Barnes, vice president and fixed income co-manager at National Penn Investors Trust. Hoenig's dissent indicates he might like to see rates start to move higher in the first half of the year.

However, rates are unlikely to move anytime soon, Barnes said. The combination of low interest rates and the injection of trillions of dollars of stimulus into the system helped fuel the stock market rally last year and take the edge off the worst recession since the Great Depression. The Fed is unlikely to step back just yet, especially when the recovery is still tentative.

"The economic news has in some ways been more positive than anticipated, outside of what we've seen in housing," Barnes said. "But we're still a long ways away from when the Fed is going to be comfortable raising rates or pulling money off the table."

With his term set to expire Sunday, questions remain about whether Fed Chief Ben Bernanke has enough votes in the Senate to force a confirmation vote. Worries that his term might not be renewed contributed to last week's massive stock selloff, in which the Dow, S&P 500 and Nasdaq all lost 5% in three sessions.

Apple: Apple (AAPL, Fortune 500) revealed the new iPad - a 1.5-lb, half-inch wide tablet computer that falls between a smartphone and a laptop.

Apple shares initially dipped as the announcement was underway, but reversed course to end about 1% higher after the lower-than-expected starting price of $499 was announced. Rumors had pegged the price as being closer to $1,000.

Apple shares are down about 1% year-to-date as of Wednesday's close, after spiking 147% in 2009.

Housing: New home sales plunged to a 9-month low, according to a Census Bureau report released Wednesday. Sales fell 7.6% to a seasonally adjusted annual rate of 342,000 in December from a revised rate of 370,000 in November.

Quarterly results: Shares of Caterpillar (CAT, Fortune 500) slid 4% after the heavy-machinery maker issued a 2010 earnings forecast of $2.50 per share, short of the $2.71 per share analysts were expecting, on average. The Dow component said that a global economic recovery only favors some of its business units rather than all.

Caterpillar also reported weaker quarterly earnings that nonetheless topped estimates and weaker revenue that missed expectations.

Fellow Dow component Boeing (BA, Fortune 500) reported a quarterly profit versus a year-ago loss on higher quarterly revenue. Results topped forecasts. However, looking forward, the company forecast 2010 earnings of $3.70 to $4 a share versus forecasts for a profit of $4.26 per share. Nonetheless, Boeing stock rallied 7%.

After the close Tuesday, Yahoo (YHOO, Fortune 500) reported a quarterly profit that reversed a year-ago loss, as the online advertising market showed some signs of life. Results were better than expected. The Internet behemoth also reported weaker quarterly revenue that topped estimates. Shares were little changed Wednesday.

World markets: In overseas trading, Asian and European markets tumbled again on concerns about China's bank lending curbs. Global stocks got hammered Tuesday after Standard & Poor's warned it could cut its debt rating on Japan.

Meanwhile, China implemented some of the bank curbs that had been hinted at last week. China is one of the main drivers of the global economy and any slowdown would have a broad impact.

Commodities and the dollar: The dollar reversed course after the Fed statement, falling versus the euro and gaining against the yen.

COMEX gold for February delivery fell $13.80 to settle at $1,084.50 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.

U.S. light crude oil for February delivery fell $1.04 to settle at $73.67 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.60% from 3.62% late Tuesday. Treasury prices and yields move in opposite directions.