Investors recharged by hopes for rate cut
NEW YORK » Stocks extended their rebound from the big summer slump yesterday after dips in manufacturing growth and construction spending raised investors' hopes for an interest rate cut.
The market also got a boost as investors bought technology stocks viewed as bargains after being battered during last month's selloff. Tech and tele-com are still seeing takeover activity despite credit concerns, and furthermore, demand electronics appears strong.
When investors returned yesterday from the long weekend, the Institute for Supply Management said the manufacturing sector expanded more slowly in August than in July, and the U.S. Commerce Department said construction activity fell in July by 0.4 percent. Wall Street was pleased that the snapshots were neither too weak nor too strong -- suggesting that the economy isn't falling apart, but that the Fed will remain inclined to cut the benchmark federal funds rate when it meets on Sept. 18, after more than a year of holding rates steady.
"We haven't had anything happen to change that outlook," said Arthur Hogan, chief market analyst at Jefferies & Co. "Everything still points to a Fed that could lower rates."
The Dow Jones industrial average rose 91.12, or 0.68 percent, to 13,448.86. The blue- chip index is about 4 percent below its record close of 14,000.41 hit July 19, but about 4.7 percent above its summer closing low of 12,845.78 reached Aug. 16.
The biggest gainer among the 30 Dow companies was General Motors Corp., which rose $1.18, or 3.8 percent, to $31.92 after reporting a increase in August sales.
Broader stock indicators also advanced. The Standard & Poor's 500 index added 15.43, or 1.05 percent, to 1,489.42, and the technology-dominated Nasdaq composite index surged 33.88, or 1.30 percent, to 2,630.24.
The Russell 2000 index of smaller companies rose 7.81, or 1.99 percent, to 800.67.
Bond prices fell as stocks gained. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.56 percent from 4.53 percent late Friday.
The dollar was mixed against other major currencies, while gold prices rose.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, but volume was at a very light 1.37 billion shares, down from Friday's 1.39 billion.
Discount wireless phone service provider MetroPCS Communications Inc. offered to acquire rival Leap Wireless International Inc. for about $5.12 billion in stock. Leap Wireless soared $10.97, or 15.1 percent, to $83.47, and MetroPCS rose $1.36, or 5 percent, to $28.65.
Yahoo Inc. was named a "top pick" by a Bear Stearns analyst, an analyst raise his price target on Intel Corp., and excitement grew over Apple Inc.'s iPhone. Yahoo rose $1.24, or 5.5 percent, to $23.97; Intel rose 43 cents to $26.18; and Apple rose $5.68, or 4.1 percent, to $144.16.
"Technology stocks are the cheapest they've looked in 10 years, on an earnings multiple basis," Hogan said,.
Stocks in the energy sector also surged as crude futures on the New York Mercantile Exchange rose $1.04 to $75.08 a barrel, on the possibility of the hurricane season intensifying and OPEC deciding not to raise production when it meets next week.