U.S. stocks gain on hopes for continued Fed easing, Dow rises 0.60%

Investing.com - U.S. stocks finished higher on Tuesday on expectations the Federal Reserve will make no major changes to its current loose monetary policies at a meeting that wraps up on Wednesday.

Improving German confidence data sent stocks rising as well.

At the close of U.S. trading, the Dow Jones Industrial Average rose 0.60%, the S&P 500 index was up 0.65%, while the Nasdaq Composite index rose 1.18%.

Stocks extended Monday's gains over building expectations that the Federal Reserve will keep monetary policy loose.

The U.S. Federal Reserve concludes its last monetary policy meeting of the year on Wednesday, and market participants are expecting the U.S. central bank to either stick with current expansionary policies or possibly loosen them even further.

The U.S. Federal Reserve is currently running a third round of quantitative easing, a monetary stimulus tool that sees the U.S. central bank buy USD40 billion in mortgage-backed securities a month from banks on an open-ended basis to spur recovery.

Such policy tools send stocks rising by design to encourage investing and job creation.

The Fed is also running its so-called Operation Twist program, under which the Fed swaps USD45 billion a month in short-term Treasury holdings for longer-term U.S. government debt.

Unlike quantitative easing, Operation Twist does not expand the Fed's balance sheet.

Operation Twist is due to expire this month, and some market participants snapped up stocks on talk the Fed may let the program end and replace it with even more quantitative easing.

Solid German economic confidence data bolstered share prices as well.

In Europe, the ZEW index of German economic sentiment rose by 22.6 points to 6.9 in
December from a reading of -15.7 in November and the first positive showing since May.

Analysts were expecting a -12.0 reading.

Stocks also saw demand after U.S. trade data came in better than expected.

In the U.S. earlier, the Commerce Department reported that the U.S. trade deficit expanded less than expected in October, hitting USD42.2 billion compared to a USD40.3 billion deficit in September.

While the numbers still reflected a weak global economy due to soft imports and exports, the data beat expectations for the trade deficit to expand to USD42.6 billion in October.

Elsewhere, Senate Majority Leader Harry Reid dampened spirits by stating he did not see a deal steering the economy away from the fiscal cliff taking place by Christmas.

Failure to avert the fiscal cliff, a USD600 billion combo of tax hikes and spending cuts taking effect at the same time, could send the U.S. economy into a recession.

Leading Dow Jones Industrial Average performers included Intel, up 2.99%, 3M, up 1.99%, and Merck, up 1.64%.

The Dow Jones Industrial Average's worst performers included Wal-Mart, down 1.73%, Bank of America, down 0.47%, and Home Depot, down 0.21%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 1.08%, France's CAC 40 rose 0.94%, while Germany's DAX 30 finished up 0.78%. Meanwhile, in the U.K. the FTSE 100 rose 0.06%.    

In the U.S. on Wednesday, the Federal Reserve is to announce its latest decision on interest rates.

Fed Chairman Ben Bernanke will hold a press conference afterwards.

The U.S. is also to release official data on import prices and crude oil inventories.