Stocks rise amid speculation Fed will move to boost economy

The financial markets rebounded on Tuesday on growing belief the Federal Reserve is ready to take actions in support of the U.S. economy.

The Dow Jones Industrial Average gained 69.07 points to 13,323.36, its highest close since late 2007. The Nasdaq Composite Index eked out a gain of 0.51 points to 3,104.53 and the S&P 500 Stock Index rose 4.48 points to 1,433.56.

Moody's Investor Services announced a downgrade in the rating on U.S. government debt could occur if Congress and the White House fail to take timely steps to deal with the approaching fiscal cliff at the end of the year when a series of tax cuts are scheduled to expire.

A two-day meeting of the Fed begins on Wednesday and an official announcement of the possible actions by the monetary panel will be released early Thursday followed by a press conference with Chairman Ben Bernanke.

Oil gained 63 cents to $97.17 a barrel after the Energy Information Agency reported U.S. demand for crude is expected to drop this year to a 15-year low of 18.7 million barrels a day. Gold added $3.10 to $1,734.90 an ounce.

Alcoa Inc. (NYSE: AA) and Caterpillar Inc. (NYSE: CAT) climbed at least 1.7 percent, pacing gains among the biggest companies. Eight out of 10 groups in the S&P 500 rose. Morgan Stanley (NYSE: MS) jumped 3.9 percent after saying it will purchase the rest of its brokerage joint venture from Citigroup Inc. (NYSE: C). Ralph Lauren Corp. (NYSE: RL) led declines among luxury goods companies as Burberry Group Plc said profit will be at the lower end of estimates

The S&P 500 is less than 10 percent from its record closing high after rising 14 percent this year. The equities index is 20 percent above its level on Sept. 15, 2008, the first trading day after Lehman Brothers Holdings Inc. filed the world’s biggest bankruptcy and prompted a 46 percent drop through March 9, 2009. The benchmark gauge fell 0.6 percent Monday as concern Greece’s debt crisis will worsen overshadowed speculation that central banks will take steps to support the global economy.

A report from the Commerce Department showed that the country’s trade deficit widened in July for the first time in four months as the global economic slowdown reduced demand for American-made goods. The National Federation of Independent Business’s optimism index rose last month to 92.9 from a nine- month low of 91.2 in July, indicating confidence among small businesses in the U.S. climbed in August as more companies anticipated a pickup in hiring and sales.

U.S. equities also rose as Germany’s Federal Constitutional Court said it will issue a ruling Wednesday on whether to allow the country to ratify the 500 billion-euro ($640 billion) European Stability Mechanism. The court rejected an argument by lawmaker Peter Gauweiler that it delay the decision after the European Central Bank pledged unlimited funds last week to buy government bonds.

The S&P 500 climbed to its highest level since 2008 on Sept. 6 as the ECB approved the bond-buying program to lower borrowing costs for the most-indebted euro-area states.

“Everybody is waiting to see what the Fed and German court will do,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Mass., which has about $4 billion in assets, said by telephone. “Europe keeps on walking up to the cliff and stepping back just enough not to fall off. Ultimately, through small steps, they’ll come to a solution to this crisis that they’re having.”

Green Mountain Coffee Roasters Inc. (Nasdaq: GMCR) jumped 5.9 percent to $32.16. Luigi Lavazza SpA said in a filing after the market closed Monday that it increased its stake to 6.8 percent. Lavazza owned 5 percent of the maker of Keurig brewers and single-serve pods as of Feb. 24, data compiled by Bloomberg show.