Battered growth stocks led the charge on Wednesday as the Federal Reserve raised interest rates as expected but appeared to reduce the likelihood of additional rate increases.
The Internet sector--perhaps the ultimate growth-stock group--had a particularly good day, as did drug and consumer-products stocks.
In the bond market, yields plunged across the board, in part because traders who had been "short" bonds--betting that yields would rise further--rushed in to buy securities to cover their wrong-way bets.
On the New York Stock Exchange, winners topped losers by 19 to 11 on heavy volume of 1.15 billion shares. Nasdaq volume topped 1.3 billion shares.
The Dow industrials surged 155.45, or 1.4%, to close at 10,970.80, while the Nasdaq composite and Standard & Poor's 500 indexes, up 1.7% and 1.6% respectively, set new highs.
The Dow is a mere 1.2% below its record of 11,107.19 set on May 13.
Stocks shot higher, and bond yields tumbled, immediately after the Fed's rate announcement at about 11:15 a.m. Pacific time.
The Dow, down modestly at that point, rocketed 200 points almost immediately. The index peaked at 11,003 before falling back.
The yield on the bellwether 30-year Treasury bond was about 6.08% before the Fed's statement. It quickly fell below 6% and closed at 5.97%, down from 6.06% Tuesday.
Shorter-term yields fell more dramatically. The two-year T-note's yield ended at 5.52%, down from 5.70% on Tuesday and the lowest since June 17.
Although short covering helped push yields down, the Fed's decision to adopt a "neutral" stance toward interest rates "gives the [bond] market room to rally," argued David Brownlee, head of fixed income at Sentinel Advisors in Montpelier, Vt.
As for stocks, Wednesday was "a major relief rally," said John Shaughnessy, chief investment strategist at Advest.
Some analysts believe that growth stocks could enjoy a continuing rebound in coming weeks, if rate worries continue to recede.
Among Wednesday's highlights:
* Red-hot Internet names included Yahoo, up $12.25 to $172.25; EBay, up $10.63 to $151.38; Inktomi, up $12.38 to $131.50; and Broadcom, up $18.06 to $144.56.
* Drug stock winners included American Home Products, up $4.06 to $57.38; Lilly, up $3.63 to $71.63; and Pfizer, up $4.13 to $109.
* Financial stocks were strong as bond yields fell. Chase Manhattan jumped $3.88 to $86.50 and Charles Schwab rose $8.88 to $109.
* Energy stocks gained as crude rallied to a 19-month high of $19.29 a barrel, up 85 cents, after reports showed U.S. oil inventories fell unexpectedly last week while motor-fuel demand strengthened. Chevron surged $1.38 to $95.06 and Schlumberger jumped $2.38 to $63.69.
* Regional telephone companies soared after analyst Simon Flannery at Morgan Stanley Dean Witter said there will be a price war that could benefit the Baby Bells in their competition with long-distance companies.
SBC Communications gained $3.50 to $58, and Bell Atlantic surged $4.94 to $65.38. Long-distance rival MCI WorldCom, meanwhile, plunged $7.56 to $86.06 and Sprint fell $2.06 to $53. MCI and Sprint were hurt on news of a Justice Department antitrust investigation into the undersea cable business.
Market Roundup, C6