The Dow Jones Industrial Average climbed to a two-year high while Treasury 30-year bonds slid and the dollar fell as the Federal Reserve planned to expand asset purchases by an additional $600 billion to shore up the economy.

The Dow rose 26.41 points, or 0.2 percent, to 11,215.13 at 4 p.m. in New York, the highest since the week Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008. The Standard & Poor’s 500 Index gained 0.4 percent to a six-month high of 1,197.96. The 30-year Treasury yield surged 0.12 percentage point, the most in two months, to 4.05 percent. The Dollar Index, which tracks trading versus six major peers, lost 0.5 percent. Oil reached a six-month high of $84.69 a barrel.

The S&P 500 has rallied 14 percent and the dollar has slumped at least 3.6 percent against 16 major peers since Fed Chairman Ben S. Bernanke indicated in August that he may inject more cash into the world’s largest economy. The Fed said today its purchases will be about $75 billion a month. The central bank will also reinvest as much as $300 billion in proceeds from agency and mortgage debt it holds. Most of the purchases will be of Treasuries due in 10 years or less.

“The bond market is seeing a bigger reaction given that people were expecting that more buybacks would be concentrated in the long-end of the curve,” said Paul Zemsky, the New York- based head of asset allocation for ING Investment Management, which oversees $550 billion. “Nothing in here tells me that we should be selling stocks.”

Bernanke’s Plan

Bernanke is trying to boost growth after near-zero interest rates and $1.7 trillion in securities purchases helped pull the economy out of recession without bringing down joblessness close to a 26-year high.

A statement from the Fed Bank of New York today said that including as much as $300 billion of reinvested proceeds from debt holdings, the central bank will buy a total of $850 billion to $900 billion of Treasuries by the end of the second quarter. Eighty percent of the purchases will target bonds coming due in 2 1/2 to 10 years.

Ten-year Treasury yields slipped two basis points to 2.58 percent after the statement. Two-year yields decreased less than two basis point to 0.33 percent.

“I would like to see the Federal Reserve articulate step- by-step what adding $600 billion in additional securities to their balance sheet, what it accomplishes and how,” Michael Aronstein, president of Marketfield Asset Management, said during a Bloomberg Television interview on “Street Smart” with Carol Massar and Matt Miller. “I understand what they did in the fourth quarter of 2008, which saved the global economy from a real meltdown, but as far as incrementally adding reserves at this point, I’m just not certain how that works.”

(Source: Bloomberg)