Wall St rises for third day after Fed's Dudley comments

By Ryan Vlastelica

NEW YORK (Reuters) - U.S. stocks climbed for a third straight day on Thursday as concerns receded that the Federal Reserve would begin to unwind its stimulus efforts earlier than expected.

A decline in weekly jobless claims and improvements in consumer spending and income added to the positive tone and contributed to the S&P 500's best three-day run since January.

Equities have been since Fed Chairman Ben Bernanke said last week the central bank's bond-buying program, credited with fueling the market's 13-percent jump in 2013, would be reined in earlier than expected if economic conditions improve.

With Wall Street so closely tethered to the direction of Fed policy, uncertainty over the timing of a pullback to the program sparked a market decline of as much as 4.8 percent in the days following Bernanke's remarks.

 

"The Fed had to be shocked at how much of a move Bernanke's testimony generated ... so now it is trying to alter expectations," said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati.

William Dudley, head of the New York Federal Reserve, said Thursday the Fed's asset purchases would be more aggressive than the timeline Bernanke had outlined if U.S. economic growth and the labor market prove weaker than expected.

Dudley stressed that slowing the pace of the Fed's bond buying would depend not on calendar dates but on the economic outlook, which remained unclear.

"The Fed got ahead of itself talking about tapering, since the data remains very mixed but consistent with the sub-par two percent growth trend," said Sargen, who helps oversee $45 billion. "The message now is that investors need to hang on."

Dudley's comments were echoed by Dennis Lockhart, the president of the Atlanta Federal Reserve, who said it would be appropriate for stimulus to be pulled back if the economy performs as expected, though the fate of the program would be dependent on economic performance.

The Dow Jones industrial average was up 97.94 points, or 0.66 percent, at 15,008.08. The Standard & Poor's 500 Index was up 10.33 points, or 0.64 percent, at 1,613.59. The Nasdaq Composite Index was up 28.20 points, or 0.84 percent, at 3,404.43.

While the S&P remains more than 3 percent below an all-time closing high reached in May, it has rallied 2.7 percent over the past three sessions.

Initial claims for state unemployment benefits dropped slightly less than expected in the latest week, to a seasonally adjusted 346,000. Analysts were looking for initial claims of 345,000.

A separate report showed consumer spending rose 0.3 percent last month while incomes grew 0.5 percent, the largest gain since February. Pending home sales rose 6.7 percent to their highest since December 2006.

In corporate news, ConAgra Foods Inc rose 5.3 percent to $35.13 as the best performer on the S&P 500 after the food manufacturer reported a quarterly profit slightly ahead of Wall Street estimates and raised its long-term outlook.

Bed Bath & Beyond Inc dipped 0.2 percent to $69.86 a day after reporting better-than-expected first-quarter sales, though profits were below forecasts.

On the downside, PayChex was among the biggest percentage decliners on the S&P after reporting results, losing 5.3 percent to $35.96.

Gold miner stocks advanced as prices of the precious metal edged higher following a 12-percent drop over the past eight sessions. U.S.-listed shares of Barrick Gold advanced 3 percent to $15.20 and Freeport-McMoRan Copper & Gold added 2.3 percent to $27.46. The NYSE gold bugs index <.HUI> climbed 2.2 percent.

(Editing by Bernadette Baum and Nick Zieminski)