Stocks rise after
half-point rate cut

The Dow jumps 114 and the
Nasdaq gains 12 after the Fed's
9th reduction of the year

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By Lisa Singhania
Associated Press

NEW YORK >> Stocks soared today in a last-minute rally that overcame Wall Street's initially lukewarm response to the Federal Reserve's ninth interest rate cut of the year.

Analysts said the advance reflected some optimism that, while lower rates won't do much immediately for the suffering stock market, the move by Fed Chairman Alan Greenspan and his fellow policy makers should help business and the economy turn around in the longer term.

The Dow Jones industrial average closed up 113.76 at 8,950.59. The gains, which came chiefly in the last hour of trading, added to a rebound that began last week after the market's huge post-attack selloff.

Broader indexes also were higher. The Standard & Poor's 500 index rose 12.78 to 1,051.33, while the Nasdaq composite index was up 11.86 at 1,492.32.

Advancers led decliners 2 to 1 on the New York Stock Exchange, with 2,075 up, 1,057 down and 173 unchanged. Volwas 1.26 billion shares vs. 1.17 billion yesterday.

The NYSE composite index rose 6.77 to 548.82, the American Stock Exchange composite index gained 4.34 to 813.74 and the Russell 2000 index rose 4.17 to 401.77.

"Volatility right after a Fed announcement isn't surprising," said Barry Hyman, chief investment strategist at Ehren- krantz King Nussbaum. "But the market understands that lower interest rates and the lower cost of capital will aid corporations when there is an economic upturn.

"People also understand that this is a move that will help business in 2002, not this quarter or next quarter."

The half-point cut had been widely anticipated because of the severe impact of last month's terrorist attacks on the already weak economy. It was the second rate cut in just over two weeks.

In response to the Fed move, Bank of Hawaii and American Savings Bank cut their base lending rates to 5.5 percent from 6 percent, effective tomorrow. Other local lenders are expected to do the same.

In a statement accompanying today's action, the Fed indicated the attacks had significantly heightened uncertainty and that there is a risk of economic weakness ahead.

That pessimistic tone might have contributed to the market's initial quiet reaction to the rate cut, although the Fed was echoing what many economists have said since the attacks. Also, with the Fed funds rate now at 2.5 percent, it isn't clear how much more there is to cut.

"From an economic standpoint, it's pretty bleak. But from the standpoint of cutting rates in the future, this is positive," Bill Barker, investment consultant with Dain Rauscher, said of the Fed's statement. "They're telling you that they're going to keep lowering rates for as long as possible."

The Dow was lifted by buying in manufacturing and retail components. Boeing rose $1.85 at $34.25, despite fears its airplane business will suffer as Americans curb their travel because of terrorism threats, while Wal-Mart gained $2.24 to $54.

Pharmaceutical stocks fell, though, including Johnson & Johnson, down 43 cents at $54.99, on profit-taking from last week's big rally.

Tech stocks were less successful, though. A third-quarter earnings warning from Compaq sent its stock down 17 cents to $8.16, in selling that spread to other computer-related businesses. Texas Instruments dropped $1.85 to $23.14, while Apple Computer lost 49 cents to $15.05.

After the market closed, Nortel Networks, the biggest maker of phone equipment, said it had a $3.6 billion loss in the third quarter as sales fell to about $3.5 billion. The company also plans to cut more jobs. Nortel said it can break even with quarterly sales of $4 billion. Its previous expense-reduction plan had targeted $5 billion, the company said. Following the additional job cuts, the firm will have 45,000 employees.

Meanwhile, Ford Motor Co. reported a 9.9 percent drop in September U.S. vehicle sales today and said high marketing costs of sales incentives will cause it to miss its third quarter earnings targets. General Motors Corp. sales were down 3 percent last month, bolstered by strong sales of its light trucks, which were up 10.2 percent compared with last September. Sales of vehicles produced by DaimlerChrysler AG fell 28 percent in September compared with September 2000.