Wall Street moves up on interest rate speculation
NEW YORK » Wall Street advanced yesterday as investors undeterred by record oil prices speculated that the Federal Reserve will cut interest rates later this week to boost the slow economy and lure more buyers into the troubled credit markets.
The Fed begins its two-day meeting today, and the market widely expects a rate reduction the following day. Central bankers lowered rates by a half-point in September for the first time in four years after the credit markets seized up and posed the threat of recession.
But with energy prices soaring to new records, the risk of inflation -- which tends to accelerate when rates are low -- may give policy makers some pause.
Crude oil futures soared above $93 a barrel for the first time on the New York Mercantile Exchange yesterday after a storm led Mexico's state oil company to suspend about a fifth of its oil production.
The Fed remains concerned about inflation but is likely to lower the target federal funds rate by a quarter-point due to overriding credit worries, said Scott Wren, equity strategist for A.G. Edwards & Sons.
"It's kind of a psychological sort of move," Wren said. "A 25 basis-point cut isn't going to ease the credit crunch. But it'll give the Fed a little more time to figure out what's going on with the economy."
The Dow Jones industrial average rose 63.56, or 0.46 percent, to 13,870.26.
Broader stock indicators also gained.
The Standard & Poor's 500 index rose 5.70, or 0.37 percent, to 1,540.98, while the Nasdaq composite index rose 13.25, or 0.47 percent, at 2,817.44.
The Russell 2000 index of smaller companies rose 0.33, or 0.04 percent, to 821.72.
Trading was relatively light yesterday. Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange, where volume came to 1.22 billion shares.
Treasury bond prices rose modestly as bond investors grew more cautious in their rate expectations.
The yield on the 10-year Treasury note, which moves inversely to the price, slipped to 4.38 percent, from 4.41 percent late Friday.
The dollar was mixed against rival currencies, while gold prices rose.
Light, sweet crude for December rose $1.67 to settle at a record $93.53 a barrel on the New York Mercantile Exchange after rising as high as $93.80.
In addition to the hope for a rate cut, an earnings report from electronics retailer RadioShack Corp. encouraged Wall Street that companies are still seeing rising profits despite the slowing economy.
RadioShack, after swinging to a third-quarter profit thanks to reduced expenses and improved inventory, rose 80 cents, or 4.1 percent, to $20.42.
Worries about Office Depot Inc.'s results, however, caused the retailer's shares to drop $2.86, or 14.1 percent, to $17.43.
Three analysts downgraded the stock after the company said it will postpone its third-quarter earnings report.
ExxonMobil Corp. and Alcoa Inc. were among the biggest gainers in the Dow. Alcoa rose $1.08, or 2.7 percent, to $40.43.
ExxonMobil rose $1.40 to $93.61.