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Stock market erases losses on Fed signals

After spending most of the day in negative territory, the S&P 500 rebounds to eke out a gain after the release of the minutes of the latest Federal Reserve meeting. 

By Pallavi GogoiAP Business Writer / August 22, 2012

Stock prices are shown at the Nasdaq MarketSite Tuesday in New York. The Nasdaq gained 6 points in trading Wednesday, while the Dow pared losses after signals that the Fed could act to prop up the weak economy.

Mark Lennihan/AP

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NEW YORK

Investors drew some comfort Wednesday from signals that the Federal Reserve is worried about the slow pace of the U.S. economic recovery feels more urgency about providing help.

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Stocks climbed back from lows after minutes from the last major Fed meeting were released. The Standard & Poor's 500 index, down most of the day, eked out a gain of 0.32 point to 1,413.49.

The Dow Jones industrial average closed down 30.82 at 13,172.76. It was down as much as 83 points earlier. The Nasdaq composite index added 6.41 points to 3,073.67.

The price of gold rose, as it sometimes does when investors think the Fed is about to pump money into the economy. Gold climbed $14 an ounce to $1,657, its highest level since early May, in trading after the day's official close.

When investors expect stimulus from the Fed, they sometimes buy gold in anticipation of a weaker dollar or because of inflation fears.

The minutes, from a meeting July 31 and Aug. 1, showed that "many members" of the Fed's Open Market Committee felt that additional action would be warranted unless the economic recovery shows "substantial and sustainable strengthening."

The minutes also showed that many officials favored pushing any increase in short-term interest rates beyond the Fed's current target of late 2014. Many economists think the target will be pushed to mid-2015.

Doug Cote, chief market strategist at ING Investment Management, wondered why the Fed needed to act. He said major economic data recently, including on jobs and consumer spending, have showed the recovery picking up.

"Why do an extraordinary form of stimulus in a moderately recovering economy?" he said.

On Wednesday, the National Association of Realtors reported that Americans bought more homes in July than in June and prices rose, evidence of a recovering housing market. The 2.3 percent increase in sales from June was the first gain in three months.

But the rate of home sales, at 4.47 million annually, was below the pace of April and May and well below the rate of roughly 5.5 million that economists consider healthy.

"The economic numbers haven't been robust, but they've been better lately," said Stephen Carl, principal and head equity trader at investment bank The Williams Capital Group.

The dollar fell sharply against most major currencies after the Fed minutes came out. Additional bond purchases by the Fed could push interest rates lower and weaken the dollar.

The euro rose to $1.2530 in late trading from $1.2467 late Tuesday. The euro jumped as high as $1.2538 after the minutes were released, its highest against the dollar since July 5.

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