Wall Street edges up ahead of Fed, unusual trading roils shares

NEW YORK (Reuters) - Stocks edged up on Wednesday ahead of the Federal Reserve's policy announcement, but traders were focused on unusually high volume in dozens of NYSE shares.

An apparent computer glitch at market maker Knight Capital caused a surge in volume in about 150 shares at the market's open, distracting investors from the Fed's two-day meeting that concludes in the afternoon.

Knight said in a statement that it was advising traders to execute their trades elsewhere, and the company's shares were hammered, falling 19.7 percent, at one point hitting a seven-year low of $7.62.

The NYSE is reviewing trades for 140 symbols, and halted trade on a handful of stocks that may have been affected. These include several Dow industrials stocks such as General Electric and Alcoa .

"It's affecting the Street. Knight has a reasonably sized market share of trading, and with that it's affecting fairly broad bases of people who are executing out there," said Frank Davis, director of sales and trading at LEK Securities in New York.

The trading sparked unusual activity in stocks such as Molycorp , which had traded more than 5.7 million shares in the first 45 minutes of trading. The stock usually averages about 2.65 million shares daily, and it was one of the stocks halted due to excessive volatility.

Other news, such as stronger-than-expected jobs numbers from the private payroll group ADP, and underwhelming manufacturing data from the ISM, receded in importance as traders hustled to execute trades.

"If you live by the sword, you die by the sword. Whether it was fat fingers and someone pushed a button by accident, I don't know, but all I can say is, welcome to the world of electronic trading," said Ted Weisberg, floor trader with Seaport Securities in New York.

Data from payrolls processor Automatic Data Processing showed private employers added 163,000 jobs in July, topping economists' expectations for 120,000 new jobs. Investors may use the report to glean clues on the health of the labor market ahead of Friday's non-farm payrolls report.

The Dow Jones industrial average <.DJI> was up 33.68 points, or 0.26 percent, at 13,042.36. The Standard & Poor's 500 Index <.SPX> was up 3.19 points, or 0.23 percent, at 1,382.51. The Nasdaq Composite Index <.IXIC> was down 1.90 points, or 0.06 percent, at 2,937.62.

Shares in Allstate , the largest publicly traded auto and home insurer in the US, jumped 7.6 percent to their highest level in nearly four years after beating Wall Street expectations.

The Fed statement Wednesday afternoon will be followed by Thursday's key meeting of the European Central Bank. Its president, Mario Draghi, heightened speculation of further ECB purchases of Italian and Spanish bonds by saying last week that he would do "whatever it takes to preserve the euro," although the German Bundesbank has already indicated its lack of support for such a plan.

The S&P 500 posted its biggest two-day percentage gain of the year to close out last week on increased expectations both the Fed and the ECB will plan further actions to stimulate their respective economies. However, the index has stalled over the last two sessions.

(Reporting by Anna Louie Sussman, editing by Dave Zimmerman)

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