Wall Street Gets Boost From Oil Price Drop

Stocks rocketed Wednesday, with the Dow Jones industrials soaring more than 162 points on a sharp drop in oil prices and a raft of better-than-expected economic news.

Crude oil plunged $3.64 a barrel, or 7.4%, to $45.49 in New York trading. It was the steepest one-day price drop since the aftermath of the Sept. 11, 2001, terrorist attacks. And with it oil has now tumbled $9.68 a barrel, or 17.5%, from its closing high of $55.17 set Oct. 22 and again Oct. 26.

That bodes well for corporate profits and consumer spending, giving some early holiday cheer to a market that had sailed into the doldrums after Thanksgiving.

“Oil is not only fuel, which is important for manufacturers, it’s feedstock for chemicals and plastics,” said Gary Schlossberg, senior economist with Wells Fargo Capital Markets in San Francisco. “When the price of oil goes up, it not only squeezes corporate margins, it squeezes consumer budgets. That weighs on economic growth.”

The Dow Jones industrial average rose 162.20 points, or 1.6%, to 10,590.22. The Standard & Poor’s 500 index jumped 17.55 points, or 1.5%, to 1,191.37 -- its highest close since Aug. 7, 2001. The Nasdaq composite index leaped nearly 2%, or 41.42 points, to 2,138.23.

Advancing issues outnumbered those declining by nearly 2 to 1 in heavy trading.

Earlier this year, oil prices climbed on fears of worldwide shortages as rising demand in the United States, China and elsewhere outpaced supply. The run-up put a drag on the U.S. economy as corporate energy costs surged and consumers were forced to pay more at the gas pump, leaving less for other spending.

The supply concerns eased Wednesday as the Energy Department reported continued growth in U.S. stockpiles of crude oil. Supplies of distillate fuels, including heating oil, also rose after several weeks of decline.

If the downward trend in prices continues, “there’s no question that lower oil prices are better for many parts of the economy and for consumers,” said Steve Enger, an energy analyst with investment firm Petrie Parkman & Co. in Denver. But that’s far from assured, he added, because supplies remain tight and the oil markets remain extremely volatile.

Stocks were also boosted by a fresh batch of economic reports that showed gains in personal income, strong consumer spending and steady economic growth, noted David Brady, president of Brady Investment Counsel in Chicago.

“There is as much optimism about 2005 right now as there has been all year,” Brady said.

Investors, wary of stocks for much of the summer and fall, now appear eager to return to Wall Street, said Ernie Ankrim, chief investment strategist at Russell Investment Group in Seattle.

“When things like oil stop being a problem and the [presidential] election stops being a worry, the market looks like it’s a good place to be,” Ankrim said.

In other market highlights:

* The dollar fell to another all-time low against the euro, which rose to $1.332 from $1.328 on Tuesday. Wall Street continued to be unfazed by the shrinking dollar, despite warnings that the trend could lead to foreign investors scaling back their diet of Treasury bonds, which has helped the U.S. economy.

* Yields on 10-year U.S. T-notes rose for a sixth straight day as the economic reports signaled that higher interest rates were still on the horizon. The yield on the benchmark 10-year note rose to 4.36% from 4.35% on Tuesday.

* Shares in DreamWorks Animation rose $3.05, or 8.3%, to $40.01 after a Prudential analyst predicted that the Glendale-based studio would be added to the Russell 2000 stock index Dec. 13, making it a must-own security for many mutual funds.

* Health insurers gained after Cigna and Humana boosted profit projections. Cigna added $5.78 to $75.80 and Humana was up $2.31 to $27.13.

* An index of semiconductor and chip equipment companies gained 3.8% for the largest gain among the S&P; 500’s 24 industry groups. Novellus Systems climbed $1.41 to $28.35 after saying quarterly earnings would come in at the high end of forecasts.

* IBM rose $1.64 to $95.88 after winning more than $1 billion in new contracts linked to the acquisition of two Danish companies. And Network Appliance, which sells data storage software, jumped $1.97 to $32.13 on news that sales and profit would exceed analyst forecasts.

* Retailers posted gains on better-than-expected sales and earnings forecasts. American Eagle Outfitters added $1.19 to $42.96, Burlington Coat Factory Warehouse gained 42 cents to $23.73 and Neiman Marcus Group jumped $3.39 to $68.70.

Reuters was used in compiling this report.