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Fed stimulus sparks a strong stock rally on Wall Street

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US stocks have soared after the Federal Reserve announced a new “QE3” bond-buying program focused on boosting jobs and pulling the housing market back to life.

After trading flat before the Fed’s announcement on Thursday, the Dow Jones Industrial Average ended up 206.51 points, or 1.55 per cent, at 13,539.86.

The S&P 500-stock index added 23.43 points, or 1.63 per cent, to 1,459.99, while the tech-rich Nasdaq gained 41.52 points, or 1.33 per cent, to 3,155.83.

The Federal Reserve announced a new program of purchasing $US40 billion ($A38 billion) a month in mortgage-backed bonds aiming at dragging down long-term interest rates.

It also pledged to keep its current ultra-low benchmark interest rate in place until mid-2015, and said it would continue its monetary easing efforts until it saw substantial improvement in the jobs market.

“Despite the fact that additional Fed easing was largely baked into financial asset prices recently, markets cheered the news,” said Paul Edelstein, an economist at IHS Global Insight.

“US equity markets added roughly one per cent following the statement. Counter-intuitively, however, bond prices fell, sending yields higher.”

“It’s unusual for the market to rally like that on news that’s expected, but I think it was the nature of the Federal Reserve announcement, the aggressive size of the quantitative easing that was announced,” said Chris Low of FTN Financial.

“Also the fact that it was open-ended, which changes the range of future possibilities, all of that together was very, very stimulative for the stock market.”

Banks were big beneficiaries, with Bank of America up 4.8 per cent and JPMorgan Chase 3.7 per cent, Citigroup 4.2 per cent and Wells Fargo 3.6 per cent.

Housing shares took a big jump from the news, with builder Hovnanian up 3.3 per cent, Comstock up 6.2 per cent, Lennar 1.7 per cent and Standard Pacific 3.7 per cent.

Mining shares followed gold and other minerals higher, with Freeport McMoran jumping 4.3 per cent, Newmont Mining up 5.2 per cent and Barrick Gold 4.8 per cent.

Apple shares meanwhile pushed up 2.0 per cent to its highest closing price ever, $US682.98, after launching the ultra-sleek iPhone 5 to positive reviews.

Bond prices were mixed after having jumped ahead of the Fed decision. The yield on the 10-year Treasury was flat at 1.76 per cent, while the 30-year yield rose to 2.97 per cent from 2.93 per cent on Wednesday. Bond yields move inversely to prices.