Closing Market Report
Star-Bulletin news services

Wednesday, December 15, 2004

Stocks move higher
after Fed rate hike

NEW YORK » The Standard & Poor's 500 and the Nasdaq composite index stretched to new three-year highs yesterday as investors welcomed a possible software merger, and the Federal Reserve issued a widely expected interest rate hike.

The Fed's Open Market Committee raised the nation's benchmark interest rate by a quarter percentage point to 2.25 percent, and released a statement that said low inflationary pressures should allow it to continue tightening rates at a "measured" pace. The language, nearly identical to the Fed's Nov. 10 statement, was reassuring to investors, who sent stocks solidly after the announcement.

Wall Street had been disappointed earlier in the day by the latest reading of the nation's trade deficit, which surged to a record $55.5 billion in October. Continued demand for Chinese imports and the high cost of oil contributed to the growing deficit, which was much larger than the $52.4 billion economists had expected. But while the numbers looked bad from a monetary point of view, they showed continued consumer spending, which some took as a bullish sign.

The Fed's latest move suggests there is "a green light for further rate increases," said Hans F. Olsen, chief investment officer at Bingham Legg Advisers, who thinks the markets are already anticipating a series of gradual hikes to at least 3 percent next year. In the near-term, however, getting 2004's final rate hike out of the way helped investors focus on other news.

The Dow Jones industrial average closed up 38.13, or 0.36 percent, at 10,676.45, extending Monday's 95-point gain for its best close since March. 1.

Broader stock indicators also strode higher, putting in their best performances since the Sept. 11, 2001 terrorist attacks. The S&P 500 gained 4.70, or 0.39 percent, to 1,203.38, a level it hasn't finished at since Aug. 8, 2001. The Nasdaq rose 11.34, or 0.53 percent, to 2,159.84, its highest close since June 29, 2001.

Adding to the market's upbeat mood, oil prices appeared to be holding steady in the $41 range. Light, sweet crude for January delivery settled up 81 cents, or 2 percent, at $41.82 per barrel on the New York Mercantile Exchange, still nearly $14 cheaper than the record settlement price of $55.17 set in October.

Buoying tech stocks, the New York Times reported that Symantec Corp. was in talks to acquire Veritas Software Corp. for $13 billion. A deal could be announced later this week, the newspaper said. Symantec tumbled $5.41, or 16 percent, to $27.45; Veritas surged $2.19, or 8.7 percent, to $27.38.

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by Financials.com

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