Buyers tread carefully ahead of Fed meeting
NEW YORK » A series of multibillion-dollar acquisitions gave Wall Street a modest advance yesterday although many investors remained cautious ahead of the Federal Reserve's decision on interest rates later in the week.
Investors were cheered by news from mining company Phelps Dodge Corp. that it will pay $40 billion in cash and stock for rivals Inco Ltd. and Falconbridge Ltd., while steelmaker Arcelor SA agreed to a $33 billion bid from Mittal Steel Co.
In addition, Dow Jones industrial Johnson & Johnson agreed to buy fellow Dow component Pfizer Inc.'s consumer products unit for $16.6 billion.
Merger-and-acquisition activity is seen as a sign of economic health, as major companies aren't expected to make major deals if they expect a decline in the economy. Yet Wall Street's boost from these deals could be short-lived as investors continue to fret over just how far the Fed will raise rates to combat inflation.
"I think the hand-wringing that's hampered the market will get out of the way after the Fed's meeting Thursday," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research in Cincinnati. "But clearly, the Fed is still going to be hawkish on inflation, and that means the possibility of more hikes down the road."
The Dow rose 56.19, or 0.51 percent, to 11,045.28.
Broader stock indicators also made gains. The Standard & Poor's 500 index was up 6.06, or 0.49 percent, at 1,250.56, and the Nasdaq composite index climbed 12.20, or 0.58 percent, to 2,133.67.
Bonds were little changed after last week's record-setting selloff, with the yield on the 10-year Treasury note rising to 5.24 percent from 5.23 percent late Friday. The dollar fell against most major currencies, while gold prices were little changed.
Oil prices moved higher on concerns about a shipping glitch in the Gulf of Mexico. A barrel of light crude settled at $71.80, up 93 cents, on the New York Mercantile Exchange.
In a week with little fresh economic data, investors welcomed the latest Commerce Department report on new home sales. Sales fell to an annualized rate of 1.234 million in May, but were better than the 1.15 million economists expected.
While the Fed likely will dominate trading later in the week, traders welcomed the chance to buy up stocks in the mining, steel and health-care sectors, which aside from the M&A activity there, are seen as defensive plays for a questionable economy.