Stocks Rebound as Stimulus Hopes Offset China, U.S. Budget Concerns

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NEW YORK ( TheStreet) -- Major U.S. stock averages rose Monday as confidence about continued stimulus support from global central banks offset worries surrounding the Chinese government's five-point plan to curb rising home prices and U.S. budget impasse.

During a conference in Washington Monday, Federal Reserve Vice Chair Janet Yellen gave dovish remarks that were in line with Chairman Ben Bernanke's monetary policy testimony last week

"At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more-rapid growth in employment," she said.

In Japan, the Nikkei Average in Japan finished up 0.4% as Haruhiko Kuroda, Bank of Japan governor-nominee, advocated aggressive measures to overcome deflation.

The Dow Jones Industrial Average rose 38.16 points, or 0.27%, to settle at 14,128. The blue-chip index booked its second highest close ever on Monday.

Breath was positive, with winners outpacing losers 19 to 11. Wal-Mart(WMT) , Home Depot (HD) , Merck(MRK) and IBM(IBM) were the biggest blue-chip gainers.

The most prominent laggards were Caterpillar(CAT) , Alcoa(AA) and United Technologies (UTX) .

United Technologies shares retreated by more than 1% after The Wall Street Journal reported the company's Pratt & Whitney subsidiary had broken up an alleged fraudulent-testing scheme by a sister United Technologies unit, affecting tens of thousands of engine parts.

The S&P 500 increased 7 points, or 0.46%, to close at 1,525. The Nasdaq advanced by 12.29 points, or 0.39%, to 3,182.

Advancers edged past decliners by a ratio of 1.3-to-1 on the Big Board and 1.2-to1 Nasdaq. Volumes rose to 3.37 billion shares on the New York Stock Exchange and 1.71 billion shares on the Nasdaq.

Sector action was mixed in the broader market. Health care, transportation, utilities and consumer staples were among the sectors that advanced. Energy, basic materials and capital good were among the sectors that retreated.

For much of Monday, stocks were trading in the red amid concerns that China's property bubble might soon burst.

China's government said it would take a number of measures to curb rising home prices including the potential expansion of home-buying restrictions and property tax increases; higher down payments and increased mortgage rates on purchases of second homes in cities experiencing rapidly- rising housing prices; and the possibility of a 20% tax on capital gains to be levied on the sale of second-hand property.

Economists at Societe Generale published a report saying they think the immediate impact of the move by the Chinese government is going to be a surge in home sales in big cities, as people rush to close deals before the policy is put into place.

Afterwards, property sales will probably drop substantially, but property prices may not as tighter implementation of the capital gain tax will serve to reduce the housing supply. "Nonetheless, slower home sales are very likely to dent the growth momentum and overall liquidity conditions, as suggested by the housing downturn in early 2012," the economists said.