Honolulu Star-Bulletin Business
Dow rises 82

Call it ‘irrational exuberance’ if you will,
but the bulls are back

Star-Bulletin wire services

NEW YORK - Stocks rallied back today, led by technology shares, as investors continued to shake Friday's jitters over a seemingly veiled warning by Alan Greenspan that the markets are too enthusiastic.

The Dow Jones industrial average gained 82 points to close at 6464.94. The 30-stock Dow average lost 55.16 points on Friday after falling as much as 144.6 points.

For the Dow and the S&P 500, today's rally was the biggest since Nov. 6.

Broad-market indexes advanced sharply too, with the technology-rich Nasdaq composite index jumping back into record territory. Computer-related shares led the day's advance, shrugging off Friday's steep pullback amid optimism the holiday selling season has been going well for the sector.

The comments Thursday night by Greenspan, the Federal Reserve chairman, were initially taken as a threat that the central bank would raise interest rates to curb what he called an "irrational exuberance" in the markets.

Foreign markets quickly sold off early Friday and bond prices slid, sending interest rates higher, all before the open on Wall Street. U.S. stocks opened sharply lower Friday morning, but rebounded much of the way with bonds after the latest unemployment data allayed fears the economy was accelerating at an inflationary pace.

Higher inflation would make a fixed-income investment such as bonds less attractive, and higher interest rates can hurt stocks by slowing consumer spending and raising corporate borrowing costs.

On the New York Stock Exchange today, advancing issues led decliners by a 3-to-1 margin with 1,948 up, 640 down and 755 unchanged. NYSE volume was 381.57 million shares, vs. 500.86 million Friday.

The Standard & Poor's 500-stock index rose 10.13 to 749.73, and the NYSE's composite index climbed 4.54 to 394.69. The Nasdaq composite index jumped 28.59 to a record close at 1,316.27, and the American Stock Exchange's index rose 4.78 to 590.48.

Today's rally confirms "we're in a low growth, benign-inflation economic environment, where interest rates will probably trend lower," paving the way for fatter corporate profits, said Philip Orlando, chief investment officer at $6 billion Value Line Asset Management.

"The market is still on firm ground unless the Fed takes serious action to counter its current policy, which is quite accommodating, or a long-term factor changes the inflation outlook," said Eugene Peroni, head of technical research at Janney Montgomery Scott in Philadelphia.

Investors apparently concluded that the Fed won't raise interest rates at its next policy-setting meeting on Dec. 17.

Overseas markets also rebounded today. Tokyo's Nikkei stock average rose 1.6 percent, Frankfurt's DAX index was up 2.3 percent, and London's FT-SE 100 was up 1.2 percent.

Bloomberg Business News contributed to this report.

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