Published: Aug 09, 2010 7:02 PM EDT
Updated: Aug 10, 2010 4:30 AM EDT

NEW YORK (AP) — Investors are getting optimistic that the Federal Reserve will restart some of its economic stimulus measures.

Stocks rose modestly Monday, a sign of investors' growing expectation that the Fed will take steps to put some energy back into the recovery. The Dow Jones industrial average gained 38 points and broader indexes also rose.

The Fed's latest assessment, and any plans to resume its stimulus of the economy, will be issued at the close of the central bank's meeting on Tuesday.

"It's all about tomorrow," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC in Chatham, N.J. "The market loves stimulus. The market wants stimulus."

The Fed will likely leave its federal funds rate near zero, but the central bank could signal plans to restart some programs such as its purchase of mortgage-backed securities or buy Treasury bonds. The central bank's programs ended earlier this year when it appeared the recovery was proceeding well.

"The Fed has a lot of tools in its tool shed," said Larry Rosenthal, president of Financial Planning Services in Manassas, Va. "They have to bring buyers back into the market; they have to bring consumption back into the market."

Still, Rosenthal said any moves would also have to ensure that inflation doesn't become a problem too quickly. The Fed could say Tuesday that it is ready to start new programs to encourage bank lending even if it doesn't implement them immediately.

Hewlett-Packard Co. shares sank after its CEO was forced to resign Friday. However, the company's problems didn't appear to be affecting the rest of the market.

In afternoon trading, the Dow Jones industrial average rose 37.54, or 0.4 percent, to 10,691.10. The Standard & Poor's 500 index rose 4.75, or 0.4 percent, to 1,126.39, and the Nasdaq composite index rose 12.98, or 0.6 percent, to 2,301.45.

About two stocks rose for every one that fell on the New York Stock Exchange, where volume came to an extremely light 380.1 million shares. Volume over the past few days has been among the lowest all year. Many investors are waiting for some clear signals on the economy before making any major moves. Low volume can lead to exaggerated gains and losses.

Bond prices traded in a narrow range Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was unchanged at 2.82 percent compared with late Friday.

Hank Smith, chief investment officer at Haverford Investments in Radnor, Pa., said the Fed has to be careful with how it phrases its assessment of the economy and any plans to restart stimulus programs. While investors know that the economy is weaker than it was earlier this year, bad news from the Fed could lead to further problems, starting with a drop in the stock market.

"It might be a self-fulfilling prophecy," Smith said.

European markets jumped after German exports reached their highest levels since late 2008, indicating the country's economy is recovering much faster than previously thought. There were concerns this spring that mounting government debt in countries like Greece, Spain and Portugal would stagnate Europe's economy. The German exports report was the latest data from the continent that showed the pace of growth is speeding up rather than slowing down.

Germany's DAX index gained 1.5 percent, Britain's FTSE 100 rose 1.5 percent, and France's CAC-40 rose 1.7 percent. Japan's Nikkei stock average fell 0.7 percent.

Hewlett-Packard CEO Mark Hurd was forced to resign after a sexual harassment claim led to the discovery he falsified expense reports. HP shares dropped $3.44, or 7.4 percent, to $42.86.

McDonald's Corp. rose after it reported strong July sales, including its biggest jump in U.S. sales in more than a year. The stock rose $1.06 to $72.80.

Stocks slid Friday, but closed the day well off their lows after the Labor Department said the unemployment rate remained at 9.5 percent in July and private employers hired fewer people than forecast last month. The disappointing report was the latest in a line that showed the economy continues to grow, but at a slower rate than earlier in the year.