Stocks soar on hopes
of half-point rate cut

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By Eileen Alt Powell
Associated Press

NEW YORK >> Stocks moved higher today as more dismal economic news raised hopes that the Federal Reserve will aggressively cut interest rates and Congress will cut taxes.

The Labor Department reported that the nation's unemployment rate shot up to 4.5 percent in April, the highest level in 2-1/2 years. The figures also showed that businesses slashed their payrolls by the largest amount since the recession in 1991.

At the White House, meanwhile, press secretary Ari Fleischer said President Bush "remains very concerned about the strength of the economy." He added that the Bush administration believes it's "entirely possible" that the government's recent 2 percent reading for the nation's first-quarter economic growth will be revised downward.

The Dow Jones industrial average fell as low as 10,673.61 before recovering. At the close of regular trading, the Dow was up 154.59 at 10,951.24. That was the strongest close since the Dow hit 10,957.42 on Feb. 6.

Wall Street's broader indicators also were down early but reversed course.

The Nasdaq composite index was up 45.33 at 2,191.53 -- its fifth positive close in six sessions -- while the Standard & Poor's 500 index rose 18.03 to 1,266.61.

Advancers outnumbered decliners about 3 to 1 on the New York Stock Exchange, with 2,073 up, 1,016 down and 194 unchanged. Volume was 1.2 billion shares vs. 1.1 billion yesterday.

The NYSE composite index rose 7.63 to 640.05, the American Stock Exchange composite index gained 17.42 to 938.14 and the Russell 2000 index rose 7.24 to 492.89.

The Treasury's 10-year note was unchanged at 98-14/32; its yield remained at 5.20 percent. The 30-year bond fell 13/32 to 95-26/32; its yield rose 3 basis points to 5.67 percent.

Stocks rose on expectations that the economic news will prompt Fed policy-makers to cut interest rates a half a percentage point when they meet May 15. Earlier, the odds had been on a quarter-point cut.

Deepening economic worries also could put pressure on Congress to pass Bush's tax-cut proposal.

Fleischer said the president believes "the best way to protect the economy and get it moving again is for Congress to take prompt action to pass the budget and put his tax cut into place, especially on a retroactive basis."

Ed Yardeni, chief investment strategist for Deutsche Banc Alex. Brown in New York, said it was extremely rare for the White House to predict a revision in a key economic measure such as the 2 percent gross domestic product reading. He suggested the Bush administration "is positioning here for a quick passage of the tax cut" favored by the president.

He said the employment figures "clearly indicate economic weakness is spreading to the consumer sector" and said that increased the likelihood of a half percentage point, or 50 basis point, interest rate cut by the Fed.

Scott Marcouiller, a vice president and analyst at A.G. Edwards & Sons of St. Louis, concurred.

"The odds of a 50 basis point cut increased dramatically in the last 48 hours," he said.

Among those taking big hits were Wind River Systems Inc., with its shares dropping 66 cents to $25.52.

The company late yesterday cut its first-quarter earnings projections to a range of 4 cents to 6 cents a share. It cited a significant slowdown in customer spending and said it will cut its work force by up to 15 percent.