Another surprise injection of money into the banking system by the Federal Reserve sparked a strong rally in stocks Tuesday.
But news from overseas also had weight with investors. The U.S. trade deficit, not counting oil and aircraft, shrank by $4 billion. Even counting oil and airplanes, the increase in the deficit was less than analysts expected.
The data reflected declining demand by U.S. consumers for imports and improved sales by U.S. companies overseas.
Imports from China were trimmed by major winter storms. Economist Ian Shepherdson of High Frequency Economics estimated that the Chinese weather accounted for about one-fifth of the improvement in the U.S. trade deficit.
Buying less from China might be a good idea, economists say, because inflation in China is accelerating. The idea that U.S. inflation is held in check by lower prices on Chinese goods is fading. Consumer prices in China, led by higher food prices, jumped in January to 8.7 percent on an annual basis, the biggest increase since 1996.
The dollar closed higher against major currencies, after the Federal Reserve’s latest effort to jump-start the banking system. The greenback scored its biggest increases against the yen and Swiss franc.
U.S. Treasury securities fell sharply, sending short-term interest rates higher, in the face of the stock market rally. As a result, the Fed’s latest move to assist the banking system ran counter to the Fed’s recent campaign to lower interest rates.
Among stocks in the news, Caterpillar advanced in after-hours trading. In a meeting with analysts, the company boosted its sales forecast for 2010.
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Wireless technology developer Qualcomm added 25 cents, to $39.42, after the company boosted its cash dividend by 14 percent and said it would repurchase $2 billion of its stock.
Oil company shares rallied along with oil prices, which touched $109 a barrel in futures trading. Oil closed up 85 cents, at $108.75.