NEW YORK, Sept 13 (Reuters) - Small and mid cap stocks surged to new highs on Thursday, with materials shares among the principal gainers after the U.S. Federal Reserve launched another aggressive stimulus program aimed at turning around a slow economy.
Coal and steel stocks jumped. On the New York Stock Exchange, U.S. Steel shares were up 3.6 percent at $22.34 and AK Steel rose 5.9 percent to $6.44.
Coal producers who specialize in steel-making metallurgical coal also surged from depressed levels hit earlier this year. Alpha Natural Resources jumped 12 percent at $8.23 and Arch Coal rose 10.1 percent to $7.39.
The U.S. Federal Reserve said on Thursday it will buy $40 billion of mortgage-backed debt per month until the outlook for jobs improves substantially and as long as inflation remains contained. The bond buying strategy is known as quantitative easing or QE.
Cliffs Natural Resources which mines coal and iron ore, another steel making raw material, surged 6.3 percent to $43.18.
"It's all QE," coal industry analyst Michael Tian at Morningstar in Chicago, said of the stock rise. "These are the ultimate risk-on stocks and people are getting into them."
A risk-on trading environment implies an optimistic outlook and analysts said the Fed's move, along with other recent positive news, like China's $150-billion infrastructure building project, showed investors were returning to what has been a distressed sector.
The S&P MidCap 400 index rose 1 percent, setting a new record high for the index and breaking well above the 1,000 level that has been a barrier in the past.
The SmallCap 600 index added 1.2 percent, also setting a new record high. In comparison, the benchmark S&P 500 surged 1.6 percent to 1,459.99, its highest close in nearly 5 years.
In company news, Abercrombie & Fitch rose 1.6 percent to $38.54. The clothing retailer has hired Goldman Sachs as it works to ward off pressure from investors, a source familiar with the matter said.
Livedeal Inc rose 17.2 percent to $5.10. The internet marketing company said Skype veteran Perry Teevens joined the company as senior vice-president of business development, effective Oct. 1.
Molycorp Inc rose after China sharply reduced the number of companies licensed to mine rare earths as part of an effort to consolidate among a few firms deposits of the minerals used for high-tech and military applications. The shares climbed 5.2 percent to $12.71.