Market gain suggests optimism about rate cut
NEW YORK » Wall Street rose sharply yesterday as investors grew more confident that the Federal Reserve will lower interest rates next week.
Traders had been hoping Fed Chairman Ben Bernanke would give some indication during a speech to Germany's Bundesbank about the Fed's next move. Wall Street is looking for a rate cut to help bolster the U.S. economy and ease problems caused by tightening credit availability.
Instead, Bernanke talked about the need for countries to cooperate toward economic stability.
He said "global imbalances" occur when countries run up trade deficits or produce big trade surpluses.
Investors nervous about the U.S. economy slipping into recession got a bit of relief from the U.S. Commerce Department's report on the U.S. trade deficit. The trade gap narrowed modestly in July to $59.2 billion from $59.4 billion in June, thanks to record exports of farm goods, autos and other products. Many economists had anticipated a widening of the deficit.
The Dow rose 180.54, or 1.38 percent, to 13,308.39.
The Standard & Poor's 500 index rose 19.79, or 1.36 percent, to 1,471.49, while the Nasdaq composite index rose 38.36, or 1.50 percent, to 2,597.47.
The Russell 2000 index of smaller companies was up 12.46, or 1.62 percent, at 782.27.
Advancing issues outnumbers decliners about 2 to 1 on the New York Stock Exchange, where volume came to 1.16 million shares, compared to 1.1 billion Monday.
Bonds fell as investors withdrew money to buy stocks, pushing the 10-year Treasury note's yield up to 4.37 percent from 4.27 percent late Monday.
The dollar weakened against the euro and British pound, while gold moved higher.
Tim Krause, director of risk management at California-based Zecco Trading, said that yesterday's rally was due to institutional investors being optimistic about a rate cut. However, he's not entirely convinced the Fed will cut rates, given that it will impact an already weakened dollar -- which is now near a record low versus the euro.
The Nasdaq got a boost due to ImClone Systems Inc., which along with Bristol-Myers Squibb Co. said the drug Erbitux improved the survival rate of lung cancer patients in a late-stage study. ImClone soared $6.97, or 18.4 percent, to $44.90. Bristol-Myers rose 23 cents to $28.23.
The Dow, meanwhile, benefited from strong gains in McDonald's Corp. shares. The fast-food chain rose $1.61, or 3.2 percent, to $51.76 after reporting that global sales at restaurants open at least a year rose 8.1 percent in August.
Boeing Co. also helped the blue chips advance after it was awarded a $1.1 billion U.S. Air Force contract. Shares picked up $2.11, or 2.2 percent, to $97.44.
Crude oil rose 74 cents to $78.23 after OPEC agreed to boost its crude output by 500,000 barrels a day in an effort to calm markets unnerved by high energy prices and worried that supplies could grow tight by the end of the year.
The settlement price bested the previous record, set July 31, by 2 cents.