Dow gains 95.6
to top 11,000

NEW YORK -- The Dow Jones industrial average extended its stunning gains today, flirting with a record as investors reveled in the new interest rate environment.

The Dow rose 95.62 to close at 11,066.42. The blue-chip index held steadily above 11,000 for the first time in weeks, and closed in on its May 13 record close of 11,107.19.

Broader stock indicators including the Standard & Poor's 500 and Nasdaq composite index also rose, hitting record highs for a second consecutive session. The S&P 500 index rose 8.25 to 1,380.96, and the Nasdaq composite index gained 20.06 to 2,706.18.

Advancers beat decliners by an 11-to-9 margin on the New York Stock Exchange, with 1,694 up, 1,371 down and 486 unchanged. NYSE volume was 833.75 million shares vs. 1.12 billion yesterday.

The NYSE composite index rose 3.30 to 651.33, while the American Stock Exchange composite index fell 2.98 to 794.95. The Russell 2000 index of smaller companies fell 3.26 to end at 454.42.

A number of smaller companies had wild price swings as the Frank Russell Co. shuffled the component stocks of its indexes, which include the Russell 2000. The changes mean that portfolios modeled after the indexes have to be adjusted as well.

Bonds prices dropped after the National Association of Purchasing Management reported the manufacturing sector expanded at a stronger-than-expected pace in June. The benchmark 30-year bond fell 1/2 point, or $5.00 per $1,000 face amount. Its yield climbed to 6.01 percent from 5.96 late yesterday.

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More rate hikes
expected

Hawaii banks raise their
prime rate after the
Fed's quarter-point move

Associated Press

WASHINGTON -- In raising interest rates a quarter-point, the Federal Reserve signaled its latest action could be enough to keep inflation under control. But some economists are still betting on additional rate hikes later this year.

Fed watchers had expected the decision to increase the target for the funds rate -- the interest that banks charge each other on overnight loans -- from 4.75 percent to 5 percent.

In response, commercial banks said they would increase their prime lending rate -- the benchmark for millions of business and consumer loans, from 7.75 percent to 8 percent. Bank of America led the way, announcing an increase in its prime rate to 8 percent effective today. (Hawaii's two largest banks, First Hawaiian and Bank of Hawaii, announced yesterday afternoon that they would also raise their prime rates to 8 percent.)

But analysts were caught by surprise by the statement from Alan Greenspan, the federal reserve chairman, and his colleagues that they had moved their policy directive, which signals the future course of interest rates, back to neutral. Financial markets were cheered by the development.

Despite the market's jubilant reaction yesterday, the Fed's move to a neutral policy bias didn't quell speculation among some economists that the Fed could raise short-term rates again.

"I still think we will get a couple more this year," said economist Sung Won Sohn of Wells Fargo. "I think they left themselves plenty of room to raise interest rates if they wanted to in the future."

Sohn and other economists cited a line in the Fed's statement yesterday saying, "It must be especially alert to the emergence or potential emergence, of inflationary forces that could undermine economic growth."

Tim O'Neill, chief economist for Harris Bank and the Bank of Montreal, still believes the Fed will raise rates another quarter point at its meeting in August, although he said the new neutral bias lowers the odds of such action at that meeting. He expects more rate hikes after that. "This is the first of several," O'Neill said.

The Fed will have a wealth of new economic data -- including tomorrow's report on June unemployment -- to analyze before its next meeting on Aug. 24.

"The bottom line: another tightening is certainly possible, but is no sure thing," said Merrill Lynch economist Bruce Steinberg. "Unless job growth is overly robust during the next two months, the Fed can remain on hold."

Even though some analysts are still betting on additional rate hikes, overall they were heartened by the moderate tone of the Fed's statement. "The message from the Fed is that they are not in any big hurry nor particularly worried that quick action is necessary on the inflation front," said economist Allen Sinai.