Stocks gain on
Fed’s rate cut

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By Hope Yen
Associated Press

NEW YORK >> The Federal Reserve's surprising half-point interest rate cut unnerved Wall Street today, leaving investors unable to decide whether the Fed's move was a sign of economic trouble or a positive step worth betting on.

Shortly after the Fed decision, blue-chip stocks jumped as much as 78 points, then tumbled 88 points lower before rising sharply again in the final trading hour.

"Investors are facing a challenging environment. On the one hand, they want higher liquidity associated with lower interest rates, but on the other hand, they don't want the negative implication ... that the economy is becoming bleaker," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

Advancing issues outnumbered decliners nearly 2 to 1 on the New York Stock Exchange. Volume was moderate.

The Dow Jones industrial average rose 92.74, or 1.1 percent, to close at 8,771.01, having gained 106.67 yesterday. It was blue chips' fourth straight advance.

The broader market also finished higher. The Nasdaq composite index rose 17.82, or 1.3 percent, to 1,418.99. The Standard & Poor's 500 index gained 8.37, or 0.9 percent, to 923.76. The Russell 2000 index, a barometer of smaller company stocks, rose 6.66, or 1.7 percent, to 392.73.

The price of the Treasury's 10-year note was up 11/32 point late this afternoon, while its yield fell to 4.03 percent from 4.07 percent yesterday. The price of two-year Treasury notes was down 1/32 point and their yield rose to 1.83 percent from 1.82 percent yesterday.

The Fed voted unanimously to lower its target for the federal funds rate to 1.25 percent, citing the economy's "current soft spot."

While investors ultimately cheered the news, analysts remained doubtful about the effectiveness of the rate cut.

"Consumer confidence is low with the prospect of a lackluster holiday shopping season," said Sung Won Sohn, chief economist at Wells Fargo & Co. "Businesses are shell-shocked from a series of body blows; they are reluctant to hire people, build inventories or purchase capital goods."

"This move could also backfire by announcing to the world that the economy is so weak that Chairman (Alan) Greenspan has to use what little ammunition he has left to shore up the economy," he said.

Kevin Caron, market strategist at Ryan, Beck & Co., agreed.

"I think overall the notion that a rate cut will have a meaningful impact on the economy is more psychological than anything else," he said. "But there's enough in the mix today to help the market move higher."

Overseas, Japan's Nikkei stock average finished 0.2 percent higher. In Europe, Germany's DAX index was down 1.6 percent, France's CAC-40 declined 1.1 percent, and Britain's FTSE 100 fell 1 percent.