(AP:NEW YORK) Wall Street jockeyed for position Tuesday ahead of the Federal Reserve’s decision on interest rates, which some investors believe will bring the key U.S. rate to the lowest level on record. Stocks rose more than 1 percent, while yields on some U.S. government debt fell to record lows.

Investors uneasy about the economy continued to funnel money into the Treasury market, sending the yield on the 30-year long bond below 3 percent.

Against the fear that has gripped Wall Street since the mid-September bankruptcy of Lehamn Brothers Holdings Inc. and the subsequent freezing of the credit markets most economists are anticipating a half-point rate cut in the federal funds rate target from 1 percent to 0.5 percent. Some in the market have been pricing in an even larger cut to an all-time low of 0.25 percent.

The Fed’s decision is due at 2:15 p.m. Eastern time.

Richard E. Cripps, chief market strategist for Stifel Nicolaus, said investors will be looking for signs in the Fed’s statement that it still has weapons in its arsenal to combat the troubles facing the economy. By cutting interest rates so low some analysts have worried that policymakers will leave themselves without many options.

“I think the language is sort of the suspense at this point,” he said.

Low rates are aimed at spurring spending and boosting the anemic economy. Investors got two more pieces of evidence on Tuesday that the economy is worsening: The Commerce Department reported a 18.9 percent drop in new home construction in November, while the Labor Department said consumer prices sank by 1.7 percent.

Cripps said a recent string of bad economic readings could help investor sentiment by convincing Wall Street that the economy has formed a bottom and could be poised for a recovery.

“The idea is it’s so bad that maybe it doesn’t take much to go up from here,” he said.

A rate cut and a statement by the Fed pledging further action to fight the financial crisis roiling the economy could help reassure investors who are concerned that the government is running out of ammunition. Still, a rate move could end up being more symbolic than anything _ the fed funds rate target helps determine the rate at which banks lend one another the reserves they keep at the Fed. And that actual rate is already below 0.25 percent.

Investors remain nervous about the struggling financial sector. Goldman Sachs Group Inc. reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter. The company lost $4.97 per share in the quarter ended Nov. 30. In the year-ago quarter, Goldman earned $3.17 billion, or $7.01 per share. The stock rose $5.31, or 8 percent, to $71.77.

In late morning trading, the Dow Jones industrial average rose 93.59, or 1.09 percent, to 8,658.12.

Broader stock indicators also rose. The Standard & Poor’s 500 index advanced 13.75, or 1.58 percent, to 882.32, and the Nasdaq composite index rose 31.92, or 2.12 percent, to 1,540.26.

The Russell 2000 index of smaller companies rose 11.31, or 2.50 percent, to 463.88.

On Monday, the stock market pulled back moderately as investors, while optimistic that the nation’s floundering automakers will get federal aid from the government sometime soon, grew nervous about the growing list of firms and individual investors affected by investment manager Bernard Madoff.

Madoff, former chairman of the Nasdaq stock market, was arrested Thursday for orchestrating what prosecutors allege was a $50 billion Ponzi scheme to defraud investors. Firms invested in his fund include such major European banks as HSBC Holdings PLC, Banco Santander, BNP Paribas, and Royal Bank of Scotland Group PLC.

Demand for government bonds remained high early on Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.50 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.92 from 2.99 percent late Monday.

Meanwhile, the yield on the popular three-month T-bill _ whose yield has at times gone negative due to frenzied buying _ rose to 0.05 percent from 0.02 percent late Monday.

The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude rose 1 cent to $44.52 a barrel on the New York Mercantile Exchange.

Markets overseas were mixed. Japan’s Nikkei stock average fell 1.12 percent, while Hong Kong’s Hang Seng index rose 0.55 percent. In afternoon trading, Britain’s FTSE 100 rose 0.34 percent, Germany’s DAX index rose 1.26 percent, and France’s CAC-40 rose 0.73 percent.

Associated Press

P.S. A special treat from the INO team

In this week’s video, we will be exploring the world of foreign exchange. It is also commonly known as the forex market to industry professionals.

The forex market is the biggest market in the world with trillions of dollars changing hands everyday. This truly is the most fluid and liquid marketplace on earth. This market trades 24 hours a day, 6 1/2 days a week and it is traded by every major bank in the world.

One of the cool things about forex is the fact that markets tend to trend very well and therefore they are very suitable for technical analysis and the use of trend following techniques such as MarketClub’s "Trade Triangle."

Today, we will be focusing in on the EUR/USD exchange rate. As of right now, the dollar continues to be gaining for the year against the Euro. However, we still have about another week left to trade in 2008 and we could see the USD end up being flat for the year.

This gets back to a point I have made before… never buy-and-hold a security or a currency as events are constantly changing in the financial arena.

My new video runs about seven minutes. In the online video, which you can view with my compliments, I will show you step-by-step exactly how we approach both trends and market timing in the forex markets.

I think you will get a lot out of this video as it will teach you how we approach the currency markets. If you have any questions please feel free to call our office at 1-800-538-7424.

Every success in the coming year and every success in trading the forex markets.

-INO