U.S. stocks gain on Yellen nomination, shutdown weighs; Dow rises 0.18%

U.S. stocks rose on Wednesday after U.S. President Barack Obama appointed Janet Yellen as head of the Federal Reserve, replacing Ben Bernanke, who steps down in January.

A fiscal impasses that has closed the federal government continued to drag on Wednesday, which dampened gains.

At the close of U.S. trading, the Dow Jones Industrial Average finished up 0.18%, the S&P 500 index rose 0.06%, while the Nasdaq Composite index fell 0.46%.

Yellen's nomination sparked demand for stocks due to her perceived dovish policy stance and tendency to favor current policies, including the Fed's USD85 billion in monthly asset purchases, which push up stock prices by driving down interest rates to spur recovery.

Weighing on gains, however, was a U.S. government shutdown that dragged on with few signs of a breakthrough ahead of an Oct. 17 deadline to raise the limit on federal debt borrowing and avoid a default sometime afterwards.

President Obama has insisted that he will only enter negotiations with congressional Republicans after the government is reopened and the U.S. debt ceiling is raised without conditions.

Still, reports that House Republicans and Senate Democrats are mulling approving short-term increases to the debt limit to stave off defaults allowed for gains despite the uncertainty.

Elsewhere, investors began to brace for a wave of earnings.

On Tuesday, Alcoa kicked off the reporting season announcing it earned USD24 million, or USD0.02 per share, in the July-September quarter, better than a loss of USD143 million, or USD0.13 cents per share during the same quarter a year ealier.

In other corporate news, Hewlett-Packard CEO Meg Whitman told an analyst meeting that revenue would stabilize in fiscal year 2014 and accelerate in 2015.

Leading Dow Jones Industrial Average performers included AT&T, up 1.96%, IBM, up 1.39%, and Goldman Sachs, up 0.88%.

The Dow Jones Industrial Average's worst performers included Merck, down 0.96%, Boeing, down 0.81%, and The Travelers Companies, also down 0.81%.

European indices, meanwhile, finished largely lower.

After the close of European trade, the EURO STOXX 50 rose 0.05%, France's CAC 40 fell 0.16%, while Germany's DAX 30 fell 0.46%. Meanwhile, in the U.K. the FTSE 100 finished down 0.44%.

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Forex - Dollar gains as Yellen tapped to take over Federal Reserve

The dollar rose against most major currencies on Wednesday after U.S. President Barack Obama picked Janet Yellen to replace Ben Bernanke has head of the Federal Reserve and ended uncertainty over the direction of monetary policy in the country.

In U.S. trading on Wednesday, EUR/USD was down 0.39% at 1.3520.

Yellen's nomination sparked relief buying for the dollar despite her being a noted policy dove and seen as sticking with currently loose monetary policies, as she will likely win confirmation in the Senate and ensure a smooth transition of leadership in the U.S. central bank.

Yellen was seen competing for the job against former Treasury Secretary Larry Summers, who bowed out of the race last month, and her nomination clears up policy uncertainty, which gave the dollar room to rise despite expectations for overall monetary policy to remain on the loose side.

Elsewhere, investors still remained cautious as a U.S. government shutdown continued into a second week, with few signs of a breakthrough ahead of an Oct. 17 deadline to raise the limit on federal debt borrowing and avoid a default sometime afterwards.

President Obama has insisted that he will only enter negotiations with congressional Republicans after the government is reopened and the U.S. debt ceiling is raised without conditions.

Meanwhile in Europe, data released on Wednesday revealed that German industrial production rose 1.4% in August, above expectations for a 1.0% gain. 

The greenback was up against the pound, with GBP/USD down 0.80% at 1.5955.

Data released earlier revealed that U.K. industrial production fell at the fastest rate in nearly a year in August, raising doubts over the outlook for third quarter growth.

The Office for National Statistics said U.K. industrial production fell 1.1% in August, defying expectations for a 0.4% increase after inching up 0.1% in July.

The ONS said manufacturing production fell by a seasonally adjusted 1.2% in August, confounding expectations for a 0.4% increase.

A separate report showed that the U.K.’s goods trade deficit narrowed to GBP9.63 billion in August from GBP9.94 billion in July, but analysts had expected the deficit to shrink to GBP9 billion.
The dollar was up against the yen, with USD/JPY up 0.47% at 97.33, and up against the Swiss franc, with USD/CHF up 0.70% at 0.9102.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.24% at 1.0393, AUD/USD up 0.22% at 0.9445 and NZD/USD trading up 0.21% at 0.8306.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.48% at 80.45.

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Obama Nominates Yellen as New Federal Reserve Chair

U.S. President Barack Obama on Wednesday nominated Janet Yellen as the new Chair of the Federal Reserve, replacing Ben Bernanke, who steps down in early 2014. 

Yellen, current Vice Chair of the U.S. central bank, is widely seen by markets as sticking with currently ultra-loose monetary policies put in place under Bernanke, especially the bank's USD85 billion in monthly asset purchases designed to spur recovery by driving down long-term interest rates. 

Yellen, 67, has said in the past that she does not see a conflict of interest when prioritizing lowering unemployment rates over keeping inflation rates in check. 

Obama thanked Chairman Bernanke for his service earlier and praised Yellen's past performance at the Fed. 

"Janet is renowned for her good judgment. She sounded the alarm bell early about the housing bubble, about excesses in the financial sector and about the risks of a major recession," Obama said, adding that she has "a keen understanding is about how markets and the economy works, not just in theory but also in the real world." 

"Janet is committed to both sides of the Fed's dual mandate. She understands the necessity of a stable financial system where we move ahead with the reforms that we have begun to protect consumers, to ensure that no institution is too big to fail and to make sure the taxpayers are never again left holding the bag because of the mistakes of a reckless few." 

"And at the same time she is committed to increasing employment. She understands the human costs when Americans can't find a job." 

Following Obama's remarks, Yellen said she was "honored and humbled" by the nomination. 

"The past six years have been tumultuous for the economy and challenging for many Americans," Yellen said, adding "We have made progress. The economy is stronger and the financial system sounder." 

Yellen's nomination sparked relief buying for the dollar despite her being a noted policy dove and seen as sticking with currently loose monetary policies, as she will likely win confirmation in the Senate. 

While some Republican lawmakers have expressed concerns, others said they expected a smooth transition of leadership in the U.S. central bank. 

Yellen was seen competing for the job against former Treasury Secretary Larry Summers, who bowed out of the race last month, and her nomination clears up policy uncertainty, which gave the dollar room to rise despite expectations for overall monetary policy to remain on the loose side. 

Bernanke is due to step down Jan. 31. 

Prior to her appointment as Vice Chair, Dr. Yellen served as President and Chief Executive Officer of the Twelfth District Federal Reserve Bank, at San Francisco. 

Yellen is Professor Emeritus at the University of California at Berkeley where she was the Eugene E. and Catherine M. Trefethen Professor of Business and Professor of Economics and has been a faculty member since 1980. 

Yellen also served as chair of the White House Council of Economic Advisers during the Clinton administration. 

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.47% at 80.45.

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