U.S. stocks gain on Fed easing policies, Dow gains 0.40%

Investing.com - U.S. stock prices rose on Friday, buoyed by the Federal Reserve's announcement it will roll out a third round of bond purchases from banks to stimulate the economy.

At the close of U.S. trading, the Dow Jones Industrial Average rose 0.40%, the S&P 500 index was up 0.40% as well, while the Nasdaq Composite index was up 0.89%.

The Federal Reserve on Thursday announced plans to buy USD40 billion in mortgage-backed securities a month from banks on an ongoing basis until the economy improves, a policy measure known as quantitative easing.

The Fed also said it would continue with its Operation Twist program that sees the U.S. central bank selling short-term Treasury holdings in the market while simultaneously buying longer-term instruments with the aim of keeping interest rates low.

The Federal Reserve will inject a total of USD85 billion a month into the economy a month via its combined stimulus measures.

The Fed also said conditions meriting low interest rates will likely last through mid-2015.

Monetary stimulus measures such as quantitative easing function by pumping liquidity into the financial system in a way that lowers interest rates across the economy, making stocks an attractive investment.

Elsewhere in the U.S. on Friday, the country's month-on-month consumer price index rose 0.6% in August from 0.0% July.

Analysts had expected CPI to rise 0.5% in August.

Month-on-month core inflation rates rose 0.1% in August compared to 0.1% in July, falling short of market forecasts for 0.2% growth.

Industrial production in the U.S. contracted 1.2% in August compared to a revised 0.5% expansion in July.

Analyst were forecasting industrial production to expand by 0.2% in August.

Consumers, meanwhile, are more upbeat these days, separate data showed.

Thomson Reuters/University of Michigan's index on consumer sentiment hit 79.2 in September, up from 74.3 in August.

Analysts were expecting a 74.0 reading.

U.S. retail sales figures outpaced expectations as well.

The U.S. Commerce Department said that retail sales rose to a seasonally adjusted 0.9% in August from 0.6% in July, whose figure was revised down from 0.8%.

Analysts had expected retail sales to rise 0.7% in August.

Core retail sales rose 0.8% in August, matching July's 0.8% growth figure.

Analysts had expected U.S. core retail sales to rise 0.6% last month.

Leading Dow Jones Industrial Average performers included Caterpillar, up 2.71%, United Technologies, up 2.38%, and Alcoa, up 2.18%.

The Dow Jones Industrial Average's worst performers  included AT&T, down 2.41%, Merck, down 2.35%, and Verizon Communications, down 2.33%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 2.02%, France's CAC 40 rose 2.27%, while Germany's DAX 30 finished up 1.39%. Meanwhile, in the U.K. the FTSE 100 rose 1.64%.