Stocks Rally as Fed Holds Rates
Wall Street staged its biggest rally in several weeks Tuesday as investors took comfort from the Federal Reserve’s widely expected decision to keep short-term interest rates at historically low levels, lifting hopes that low rates would help spur the current economic recovery.
The Fed’s policy-setting Federal Open Market Committee said it would keep its benchmark federal funds rate at 1%, where it has been since June, in a bid to strengthen the economy. And the Fed reiterated that official borrowing costs could remain low for “a considerable period.”
Stocks pared some gains briefly after the Fed’s announcement, which came late in the morning West Coast time. But a late-session buying spurt drove the Standard & Poor’s 500 index and the Dow industrial average to their biggest one-day percentage gains since July 25. Microsoft and Intel led the advance.
The Dow ended 118.53 points higher, or 1.3%, at 9,567.34; the S&P; 500 rose 14.51 points, or 1.4%, to 1,029.32.
The technology-heavy Nasdaq composite index shot up 41.55 points, or 2.3%, to 1,887.25, its biggest percentage surge since July 7.
Advancers outnumbered decliners by almost 3 to 1 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq in active trading.
The rally left many major indexes just below the 52-week highs reached on Sept. 8. The S&P; index, for example, was less than 3 points below the Sept. 8 close; the Nasdaq index was less than 2 points from that day’s close.
In its statement, the Fed made a point of noting weakness in the U.S. labor market. Although the economy is showing stirrings of life, it has yet to generate new jobs, which could hamper the recovery once a temporary boost from tax cuts fades.
“The market’s initial reaction was that the Fed doesn’t think the economy is picking up that much, and we sold off a bit on that,” said Adam Tracy, director of listed trading at Thomas Weisel Partners. However, “there was nothing really negative in the Fed’s comments. Except for jobs, there’s definitely signs the economy is picking up.”
Mutual fund managers increasingly are favoring stocks over bonds as optimism about the global economy and corporate earnings rises, according to Merrill Lynch & Co.’s latest survey of investors.
More than half of the managers surveyed said they held a greater percentage of assets in stocks than their benchmarks would suggest. The figure is the highest since Merrill Lynch started asking the question in 1999, the year before stocks entered a three-year bear market.
Technology stocks have led this year’s rally, in a bet that the companies’ earnings will rebound.
Microsoft, the world’s largest software maker, rose 54 cents to $28.90 Tuesday, while Intel, the biggest semiconductor maker, added 92 cents to $28.91. They were the two biggest contributors to the S&P; 500’s advance.
Cisco Systems, the No. 1 maker of equipment to direct Internet traffic, gained 90 cents to $21.29.
The bond market’s reaction to the Fed meeting was muted. The yield on the benchmark 10-year Treasury note settled at 4.27%, virtually unchanged from Monday’s close.
In other highlights:
* Oil prices fell for a fourth day on speculation that the government will report that U.S. oil inventories rose last week. Crude for October delivery fell 58 cents to $27.56 a barrel in New York trading, its first close below $28 since May 12. Gasoline futures fell to their lowest price in almost three months, losing 2.47 cents to 83.46 cents a gallon.
* Dow member International Paper, the world’s biggest paper company, jumped $1.18 to $41. Merrill Lynch said the company’s earnings per share would double next year, fueled by a rebound in the paper industry. Georgia-Pacific, the second-largest paper and lumber maker, added 51 cents to $25.03.
* San Diego-based Titan soared $4.33, or 26%, to $21.29. Lockheed Martin agreed to buy the communications equipment maker for $1.8 billion, including the assumption of $580 million of debt. Titan shareholders will get $22 a share in cash, stock or both. Lockheed shares dropped 97 cents to $50.
* Tokyo’s Nikkei index jumped 1.6% to 10,887 and is up 17.5% since early August. The yen, meanwhile, had its biggest gain in more than a month against the dollar after the Bank of Japan said it was more optimistic about the prospects for economic growth.
Market Roundup, C8-9
