By Deepa Seetharaman
NEW YORK (Reuters) - Stocks rose on Wednesday, the end of the one of Wall Street's worst years, as investors looked to 2009 for fresh policies that would stave off the deepening recession.
The U.S. Federal Reserve on Tuesday built on its effort to drive down mortgage costs, and set a goal of buying $500 billion mortgage-backed securities by mid-2009.
The program is part of an ongoing government effort to wrench the United States from deep housing bust that has thrust the economy into a recession. On Monday, U.S. lawmakers also extended an additional $6 billion package to General Motors Corp
"There is general optimism that the new administration will come forth with some policies that are going to help," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois. "There is optimism for further recovery next year and that the market will move forward."
The Dow Jones industrial average <.DJI> rose 61.97 points, or 0.71 percent, at 8,730.36. The Standard & Poor's 500 Index <.SPX> added 6.07 points, or 0.68 percent, at 896.71. The Nasdaq Composite Index <.IXIC> gained 15.38 points, or 0.99 percent, at 1,566.08.
The broad S&P 500 looks set to end 2008 down about 40 percent for the year, although it has recovered almost 18 percent since hitting an 11-year low on November 20.
The last economic data point of 2008 showed the number of workers filing new claims for jobless benefits fell much more than expected to 492,000.
Still, seasonal factors likely contributed to the drop, the Labor Department said, and the labor market remains soft.
Analysts continue to expect more pain in the near-term in the form of more bleak economic reports and more layoffs. Markets around the world have been pummeled during the worst financial crisis in 80 years that left no industry untouched.
The U.S. casualties include the bankruptcy, acquisition or government takeover of such household names as Bear Stearns, American International Group
AIG, which was rescued by the government soon after the collapse of Lehman, is prepared to ask the Federal Reserve to relax rules on its more than $60 billion disposals program to allow bidders to use a greater proportion of shares to pay for its assets, the Financial Times reported.
Some see signs of recovery on the horizon. On Tuesday, stocks climbed after the government expanded its bailout of the auto industry, encouraging hopes that policy-makers will continue to take steps to minimize the severity of the year-long recession.
"Yesterday was an encouraging day," Jankovskis said. "There was a nice rally to end the day as the market shrugged off some weak data."
On the housing front, demand for U.S. mortgage applications was unchanged during the Christmas holiday week, holding the highest levels in more than five years with loan rates near record lows, an industry group said on Wednesday.
One stumbling block in the way of a recovery could be Bernard Madoff, the man regulators accuse of defrauding investors of some $50 billion. He faces a Wednesday deadline to tell regulators how much he is worth and where his money and other assets are.
The Madoff scandal, which came to light earlier this month, has added to already negative sentiment in the markets. Scores of wealthy people, banks, universities and charities around the world say they are victims, but so far the exact amount of money lost is not known in what could be the largest fraud in history.
(Editing by Tom Hals)
