S&P 500 turns positive for year after Fed minutes

An already strong market got an extra boost Wednesday when release of minutes from the Federal Reserve's last policy meeting appeared to pave the way for an interest rate hike in December.

The Dow Jones industrial average was already up nearly 130 points on the 2 p.m. ET release of the minutes from the Fed's October meeting and quickly added to the gains, finishing the day up 248 points, or 1.4%, at 17,737. The benchmark Standard & Poor's 500 index finished up 1.6% and pushed back into the black for 2015. The tech-heavy Nasdaq composite gained 1.8%.

It was the third consecutive up day for the Dow, with financial markets showing impressive resilience this week after the deadly attacks in Paris Friday sparked global concern about the economic impact of terrorist violence.

Oil prices fell as U.S. benchmark crude briefly dropped below $40 a barrel, falling as low as $39.91. Oil finished the day almost flat, up 7 cents at $40.74. It is within $2 of breaking below its 2015 closing low of $38.24 a barrel set back on Aug. 24.

Fed: Economy 'could well' handle rate hike

Why such a positive reaction to what looks like a confirmation that the Federal Reserve is on track to hike interest rates at its December meeting for the first time in nearly a decade?

A big reason is that the Fed minutes reiterated that the pace of rate hikes will be “gradual,” a comment that investors interpreted as the Fed leaving borrowing rates ― currently pegged around 0% ― at very low levels for a longer period of time.

In short, the market is convinced the Fed will raise borrowing rates slowly, which lowers the odds of the Fed raising rates too quickly and choking off the economic recovery.

“It was noted that the beginning of the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow,” Alan Skrainka, chief investment officer at Cornerstone Wealth Management, told USA TODAY. “It is already widely assumed liftoff will begin in December. Investors were encouraged by language that the trajectory will be shallow.”

At least one market pro was surprised that stocks shot up after the Fed minutes were released, as the threat of rising rates had been viewed as a negative by many market participants.

“It is interesting because you'd think the market would be selling off,” Quincy Krosby, market strategist at Prudential Financial, told USA TODAY. One theory is that “perhaps the market's thinking is it isn't going to happen in December given a deteriorating backdrop."

She notes that since the Fed’s October meeting, foreign risks have turned “decidedly ugly” after the Paris terror attacks. U.S. economic data has also turned mixed, she added. But Krosby also noted that the market might “finally be happy that (the Fed hike will) get done” and the Fed will raise rates at a gradual pace. Fed chief Janet Yellen will be on Capitol Hill in early December, Krosby said, adding that Yellen’s testimony “should provide a more up-to-date picture of where the Fed is headed.”

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European stocks were mostly lower with France's CAC 40 down 0.8% and Germany's DAX index falling 0.3%. London's FTSE 100 was flat.

In Asia, Japan’s Nikkei 225 index gained 0.1% while Hong Kong’s Hang Seng index lost 0.3%. The Shanghai composite index fell 1%.

U.S. stocks ended mixed in a tight range Tuesday ahead of the start of the Christmas shopping season, amid worries that sales will be weak.

The consumer price index rose 0.2% in October after two months of declines, which could increase the likelihood that the Federal Reserve will begin raising interest rates as early as next month.

Contributing: Adam Shell, Associated Press

Jane Onyanga-Omara on Twitter: @janeomara.