Bernanke talk spurs record high for Dow

Optimism that the global economic expansion will keep rolling drove key U.S. stock indexes to record highs Wednesday.

The Dow Jones industrial average topped 12,700 for the first time, rising 87.01 points, or 0.7%, to 12,741.86.

In a sign of broad-based demand for stocks, the session marked the first time since 1998 that all three major Dow share indexes -- the industrials, the transports and the utilities -- swept to record levels simultaneously.

Markets also were mostly higher overseas, adding to last year’s sharp gains.

Wall Street was cheered by Federal Reserve Chairman Ben S. Bernanke’s generally upbeat testimony to Congress on the economy and inflation.

The Fed chief said that inflation pressures were “beginning to diminish” and that the troubled housing market was showing “tentative” signs of stabilizing.

Investors seized on his comments as an endorsement of the economy’s pace of growth and as a confirmation that the central bank would continue to hold interest rates steady.

“People were worried that he was going to be overly hawkish,” said Brian Wesbury, chief economist at First Trust Advisors in Lisle, Ill. “He wasn’t ... and that was a relief.”

To bullish analysts, the likelihood that the Fed won’t raise interest rates further bolsters expectations for a sustained economic expansion.

Bob Bissell, president of Wells Capital Management in Los Angeles, said investors would feel freer to focus on continuing corporate revenue and earnings growth.

Earnings of the blue-chip Standard & Poor’s 500 companies rose 10.9% in the fourth quarter, based on reports so far and analyst estimates tallied by Thomson Financial.

For 2007, S&P; 500 earnings are expected to rise 7%. That would be a slowdown from recent years but still would mean record profit levels.

In Bissell’s view, the outlook for earnings growth hasn’t been fully factored into share prices.

That appeared to be true for farm machinery giant Deere & Co. on Wednesday. The company’s shares surged $9.24, or 9%, to a record $111.91 after Deere said net income in the quarter ended Jan. 31 was $1.04 a share, far above analysts’ consensus estimate of 82 cents.

Gains in other industrial stocks and in transportation issues suggested that many investors are on board with the idea of a long economic expansion.

The 20-stock Dow transport index jumped 105.40 points, or 2.1%, to a record 5,117.27, fueled by big gains in railroad issues.

According to the “Dow theory,” it’s a bullish sign for the market when the Dow industrials and the Dow transports hit new highs together. Because they deliver the goods that businesses and consumers buy, a strong performance by railroads, airlines and truckers is believed to foreshadow solid economic growth.

The 15-stock Dow utilities index also reached an all-time high, rising 0.4% to 477.07.

The last time all three Dow indexes hit new highs simultaneously was March 17, 1998, according to Dow Jones & Co.

Also hitting records Wednesday: the New York Stock Exchange composite index and an S&P; index of mid-size stocks.

The S&P; 500, which tracks the biggest U.S. companies, reached a six-year high, up 11.04 points, or 0.8%, to 1,455.30.

The technology-heavy Nasdaq composite index rallied 28.50 points, or 1.2%, to 2,488.38. It hit a six-year high of 2,502.82 on Jan. 12.

Winners topped losers by 2 to 1 on the NYSE and by 3 to 2 on Nasdaq.

Falling bond yields helped stocks. Treasury bond yields pulled back after Bernanke’s testimony indicated that the Fed saw no need to tighten credit further, at least in the near term.

The 10-year Treasury note yield fell to 4.74% from 4.81%.

In commodities trading, crude oil futures slid $1.06 to $58 a barrel amid forecasts for warmer weather in the Eastern U.S.

Some Wall Street bulls say that, despite their general optimism, they’re concerned that stocks have rallied without a sizable pullback since summer. The Dow industrials are up 18.6% since July 14.

That could mean that any negative surprise could be magnified, some analysts warn.

“The Fed’s forecast is a perfect Goldilocks economy, and my problem with that is it never turns out that way,” Wesbury of First Trust Advisors said.

Among the day’s market highlights:

* Railroad CSX rocketed $2.73 to $42.10 after the company announced a 20% dividend increase and a new share-buyback program. Also in the transports sector, freight-services firm YRC Worldwide rose 83 cents to $45.80 and FedEx gained $4.04 to $117.58.

The Dow transports index is up 12.2% this year, compared with a 2.2% rise for the Dow industrials.

* Manufacturing stocks rallying with Deere included Caterpillar, up $1.43 to $66.16; Cummins, up $6.39 to $144.72; and Illinois Tool Works, up 82 cents to $52.77.

* DaimlerChrysler soared $5.33 to $69.78 after the automaker announced deep job cuts to boost its bottom line.

* Shares of brokerages and mutual fund firms were higher on optimism about the bull market. Merrill Lynch gained $1.50 to $93.80, Goldman Sachs rose $4.87 to $217.40 and Legg Mason was up $2.27 to $104.02.

* Stocks of some battered mortgage lenders attracted buyers. New Century Financial rose $1.16 to $19.75 and IndyMac Bancorp added 83 cents to $37.88.

* On the down side, Weight Watchers International plunged $4.07 to $49.61 after saying 2007 profit wouldn’t meet forecasts.

* In foreign trading, stocks reached six-year highs in Germany, Britain and Japan and record highs in Mexico, Brazil and Australia.

walter.hamilton@latimes.com

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Rallying on

Major stock markets worldwide are up this year, building on last year’s strong gains.

*--* Pctg. change Pctg. change Country/index ’06 ’07 Mexico/IPC +48.6% +7.9% Germany/DAX +22.0 +5.5 Australia/ ASX-200 +19.0 +5.4 Brazil/Bovespa +32.9 +3.4 Britain/ FTSE-100 +10.7 +3.2 Japan/ Nikkei-225 +6.9 +3.1 U.S./Nasdaq composite +9.5 +3.0 U.S./S&P; 500 +13.6 +2.6 U.S./Dow 30 +16.3 +2.2 India/Sensex +46.7 +1.6

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Note: Changes are measured in local currencies.

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Source: Bloomberg News