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Stocks rallied off of steep morning losses to finish the day with 0.2% gains.   Investors initially viewed the discount rate hike as a sign that the Fed would begin tightening sooner rather than later.  Bulls took stocks higher throughout the day on hopes that the Fed is on hold for most of 2010.  Volume was moderate on the day and breadth was fairly mixed.  The decline in the breadth and the low volume have been two bearish characteristics of the move off the recent lows. Daily Futures wraps up the action from all markets:

U.S. Economy
Late Thursday afternoon, the Federal Reserve raised the discount rate from .50% to .75%, saying that they want banks to rely again on private markets for short-term credit. The Fed also repeated that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

The U.S. Labor Department said that the consumer price index was up .2% in January and up 2.6% from a year ago, less than expected. That added credibility to the Fed’s comments about not needing to raise the federal funds rate anytime soon. The March 2011 eurodollars closed down .07 at 98.605.

Grains and Cotton
At this morning’s annual USDA Ag Forum, the USDA released the following U.S. estimates for 2010-2011:
13.16 billion bushels of corn production and a reduction of ending stocks from 1.719 to 1.654 billion bushels.
3.26 billion bushels of soybean production and an increase of ending stocks from 210 to 330 million bushels.
1.945 billion bushels of wheat production and a reduction of ending stocks from 981 to 940 million bushels.
16.0 million bales of cotton production and an increase of ending stocks from 3.3 to 3.4 million bales.

May soybeans ended down 4.5 cents at $9.53 after the USDA’s higher ending stocks estimate for 2010-2011.

The USDA said that, as of last week, 2009-2010 exports of:
Corn fell from up 6% to up 4% from a year ago.
Soybeans fell from up 37% to up 34% from a year ago.
Wheat improved from down 26% to down 25% from a year ago.
Cotton improved from down 30% to down 29% from a year ago.
May cotton closed up .85 at another new contract high of 78.98.

After the close, the USDA said that there were 10.989 million head of cattle on feed on February 1st, down 2.6% from a year ago and a little more than expected. Placements in January were down 2% and marketings were up 2% from a year ago. April cattle were up .25 at 93.30 ahead of the report.

Also after the close, the USDA estimated this week’s beef production at 478.2 million pounds, down 1.7% from a year ago. Pork production was estimated at 438.6 million pounds, down 3.0% from a year ago. April hogs were down .62 to 69.65.

This morning, the USDA said that net sales of beef totaled 9,800 tons last week, up from 6,300 tons the previous week.

Orange juice
It is still not clear how much damage was done to Florida’s citrus groves this winter, but at least the ten-day forecast looks safely warm for now. May orange juice ended down 1.85 cents at $1.4000.

May crude oil closed up .60 at $80.45 in spite of today’s stronger U.S. dollar and yesterday’s hike in the discount rate. Ongoing tensions with Iran are among traders’ concerns.

April gold closed up $3.40 at $1,122.10 after yesterday’s Fed announcement of an increase in the discount rate.

Statistics Canada said that retail sales were up .4% in December to C$35.3 billion, slightly less than expected. Also, the composite index of leading indicators was up .9% in January with a gain in eight of the ten indicators. The March Canadian dollar was down .04 at 96.11.

The U.K.’s Office for National Statistics said that total retail sales volume was down 1.8% in January, but up .9% from a year ago.

The Bank of Japan said today that “Japan’s economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.” The March yen fell .0050 to 1.0901, the lowest close in five weeks.

According to Markit Economics, a purchasing managers’ index for the Euro zone was unchanged at 53.7 in January, a little better than expected.