US stocks rise as Fed rates meeting starts

US stocks rose for a second day as energy companies rallied with crude oil, while Federal Reserve officials start a two-day meeting at which they are widely expected raise rates for the first time since 2006.

Chevron and Exxon gained more than 3 per cent, taking their two-day advances to more than 6 per cent. Financial shares increased as concern over turmoil in high-yield bonds abated, with asset managers Affiliated Managers Group and Franklin Resources. rebounding at least 1.6 per cent.

The Standard and Poor’s 500 Index climbed 1.1 per cent to 2,044.47, with the gauge headed toward its first back-to-back gains since November 3rd.

The Dow Jones Industrial Average increased 172.37 points, or 1 per cent, to 17,540.87. The Nasdaq Composite Index rallied 1.2 per cent. West Texas Intermediate crude futures rose 1.5 per cent.

"Stocks were up in late trading yesterday and we're seeing a continuation of that sentiment today," said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank in Bonn.

“A rate hike would be a positive sign because it shows the Fed believes the US economy and the global economy is in good health and that there will be a good outcome for economic conditions.”

Prospects for the first US rate increase since 2006 and a deepening oil rout had sparked a selloff in riskier assets in December. The 1.7 per cent decline for the SandP 500 is bucking the historical trend of gains in the final month.

The equity gauge is on track for its worst December in 13 years and the biggest annual drop since 2008. It has declined 4 per cent since a May record.

Fed officials announce their decision on borrowing costs on Wednesday at 2 pm in Washington, and traders are pricing in a 78 per cent chance of a liftoff. Data on Tuesday reinforced expectations for a gradual increase in rates, with the cost of living holding steady in November, underscoring scant inflation that is well below the Fed’s goal.

Excluding volatile food and fuel, the so-called core measure increased 2 percent from November last year, the most since May 2014. Among the other few economic cues before the rate announcement are reports on housing starts and industrial production on Wednesday.

"I think the Fed will be comfortable with a rate hike tomorrow, considering the core inflation rate year-on-year is up to 2 per cent," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds . "They'll certainly want to convincingly signal that they're going to follow a very shallow path in future rate hikes."

- Bloomberg