Stocks rebound ahead of Federal Reserve statement on economy

Stocks rebounded slightly Tuesday morning as investors continued to process the implications of the downgrade to the nation's credit rating.

The spike came after a day of heavy losses in the markets and hours before the Federal Reserve's policy-setting committee was set to meet, buoying hopes that the central bank might take some steps to boost the slowing economy.

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The Dow Jones Industrial Average was up more than 200 points in the first hour of trading on Tuesday, and the S&P 500 and NASDAQ stock indices both jumped over 2 percent shortly after markets opened.

The bump was a welcome sight for traders, after the Dow lost more than 600 points on Monday in its worst day of trading since the financial crisis. The NASDAQ and S&P 500 both lost nearly 7 percent in the first day of trading since Standard & Poor's downgrade of the U.S. credit rating.


Skittish investors continue to seek out safe havens for their funds, however. The price of an ounce of gold climbed to yet another record high: more than $1,770 an ounce on Tuesday.

Traders will be fixated on the Federal Reserve in the afternoon, when the bank's Federal Open Market Committee (FOMC) is set to meet and release a statement on the economy. 

Federal Reserve Chairman Ben Bernanke has said publicly the Fed is looking into further stimulus for the economy, and the recent economic turmoil has led many to speculate that the day's meeting could yield some news on that front.

Bernanke has said the Fed could make further purchases of Treasury bonds in what would be a third round of "quantitative easing." It also could offer more explicit guidance about its future plans for interest rates, or lower how much it pays banks for their reserves, encouraging them to pump more money into the economy.

But Bernanke has also offered significant caveats on that front, noting that the Fed has "limited experience" with any of these efforts, and he told lawmakers in July that the Fed did not have any immediate plans to embark on any new initiatives.


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