Stocks rose Tuesday on hopes that the Federal Reserve will extend stimulus measures as the economy struggles to recover and the euro zone’s debt crisis worsens.  The Standard & Poor’s 500-stock index has gained 7.2 percent from a five-month intraday low reached on June 4. But the sharp gains leave the market vulnerable if the outcome of Wednesday’s Fed meeting does not meet market expectations.  “People are anticipating some type of response from the Fed tomorrow, and are buying or covering shorts in anticipation of that,” said Paul Zemsky, head of asset allocation at ING Investment Management in New York. “There’s a risk the market gets disappointed.”  Growth-related stocks led the rally. U.S. Steel rose 9.5 percent, to $20.15, while Bank of America added 4.5 percent, to $8.11.  Markets kept an eye on developments in Europe. A sharp decline in German business sentiment, alongside stubbornly high Spanish bond yields, raised expectations for stimulus from European policy makers as well.  British media reports earlier said that Chancellor Angela Merkel of Germany was poised to use Europe’s dual bailout funds, the European Financial Stability Facility and the European Stability Mechanism, to buy debt of countries like Italy and Spain.  “We went to the highs of the day on that, and we have the Fed tomorrow. This is a bailout, central bank largess bounce,” Peter Boockvar, equity strategist at Miller Tabak in New York, said.  The Dow Jones industrial average gained 95.51 points, or 0.75 percent, to 12,837.33 at the close. The Standard & Poor’s 500-stock index rose 13.20 points, or 0.98 percent, to 1,357.98. The Nasdaq composite index ended up 34.43 points, or 1.19 percent, to 2,929.76.  On Tuesday, the Federal Open Market Committee began a two-day meeting on interest rates. The meeting got under way with expectations rising that the bank may extend its effort to drive down long-term borrowing costs.  The Treasury’s benchmark 10-year note fell 14/32, to 101 6/32 and the yield rose to 1.62 percent from 1.57 percent late Monday.  Oracle rose 3.1 percent, to $27.96 a day after it reported stronger-than-expected quarterly profit.  Walgreen tumbled 5.9 percent. to $30.09 after it posted lower quarterly earnings and said it would buy a 45 percent stake in Alliance Boots.
The stock market may have set itself up for disappointment if no sign of easier money emerges at the end of the Fedâs policy meeting tomorrow.