http://biz.yahoo.com/ap/071128/wall_street.html

Stocks Soar Along With Hope for Rate Cut
Wednesday November 28, 5:42 pm ET 
By Madlen Read, AP Business Writer 


 

Stocks Soar, Dow Gets Biggest 2-Day Gain in 5 Years As Investors' Hopes Grow
for a Rate Cut 

NEW YORK (AP) -- Wall Street barreled higher Wednesday for the second day in
a row, giving the Dow Jones industrial average its biggest two-day point
gain in five years after a Federal Reserve official hinted that the central
bank may lower interest rates again. 

Investors' renewed hopes for a rate cut added to their relief that companies
that made losing bets on subprime mortgages, such as Citigroup Inc. and
Freddie Mac, are coming up with ways to raise cash. The market was clearly
optimistic that at least some of the damage from the months-long credit
crisis was finally being mitigated. 

However, Wall Street has been fickle in recent months, with the Dow often
rising and falling by triple digits, and no one is betting that the mortgage
crisis that tripped up the nation's financial industry this year is over or
that the market's huge gains so far this week will stick. Despite its
spectacular advance, the Dow remains more than 6 percent below its Oct. 9
record close over 14,000, having plunged due to worries that the housing
market's slump will lead to further losses for banks, and that the Fed can't
keep slashing rates. 

"The market's perception of whether the Fed cuts or not really changes by
the day," said Michael Sheldon, chief market strategist at Spencer Clarke
LLC. "We still have more data to come." 

Early Wednesday, Fed Vice Chairman Donald Kohn told the Council on Foreign
Relations that recent financial turbulence has reversed some of the
improvement seen in markets in previous weeks, and could squeeze credit for
households and businesses. He said tight financial conditions may merit
"offsetting" policy from the central bank. 

The possibility for lower rates seemed more compelling to investors than
persistent concerns about a slowdown in economic growth. The Fed has already
reduced rates at its last two meetings, and continues to inject billions of
dollars into the financial system through repurchase agreements to help calm
the shaky markets. The central bank will hold its final rate-setting meeting
of the year Dec. 11. 

Plunging oil and gold prices also lifted investors' hopes for a rate cut --
if inflation is in control, policy makers have less reason to keep rates
high. The Fed's Beige Book of economic activity around the country said with
the economy expanding at a reduced pace, most core prices are stable or down
slightly. 

The Dow soared 331.01, or 2.55 percent, to 13,289.45, adding to the blue
chip index's 215 point gain on Tuesday and giving the market's best known
indicator its largest two-day point gain since Oct. 11, 2002, and largest
two-day percentage gain since Nov. 21, 2002. 

Wednesday's jump was also the biggest one-day percentage gain for the Dow
since April 2, 2003. 

The broader Standard & Poor's 500 index climbed 40.79, or 2.86 percent, to
1,469.02, logging its best two-day point gain since April 19, 2001. 

The Nasdaq composite index shot up 82.11, or 3.18 percent, to 2,662.91,
giving the technology-dominated index its largest two-day point gain since
March 4, 2002. 

Government bonds slipped as stocks rallied. The yield on the benchmark
10-year Treasury note rose to 4.05 percent from 3.95 percent late Tuesday --
and ticked up to 4.05 percent in afterhours trading. 

Crude oil posted its own two-day milestone Wednesday, falling $3.80 to
settle at $90.62 a barrel on the New York Mercantile Exchange after dropping
$3.28 Tuesday. The $7 two-day plunge was the second-largest since the Nymex
introduced a futures contract 24 years ago. 

The dollar fell against the euro and pound, but rose against the yen. 

"Everything we're seeing in the market is revolving about credit and
encouragement that the Fed is going to bail us out again," said Alexander
Paris, economist and market analyst for Chicago-based Barrington Research.
"Investors are kind of ignoring the economic news like housing and durable
orders that were all weaker than expected." 

Indeed, signs that the Fed will reduce rates to keep cash flowing freely
helped overshadow reports that in October, sales of existing homes fell for
the eighth consecutive month and orders for big-ticket manufactured goods
fell for the third straight month. 

Wall Street has had a volatile week so far. Economic and credit market
concerns sent the Dow plunging 240 points on Monday, pushing the index to
the level of a 10 percent market correction. 

On Tuesday, the market rebounded, finding some consolation after the
investment arm of Arab city state Abu Dhabi invested $7.5 billion in
Citigroup. Then, late Tuesday, government-sponsored mortgage investor
Freddie Mac halved its dividend and said it would sell $6 billion of
preferred stock, bolstering investors' sentiment that financial companies
have some recourse. 

On Wednesday, Freddie Mac rose $3.69, or 14.3 percent, to $29.42 on
Wednesday, while its larger counterpart, Fannie Mae, rose $2.90, or 9.9
percent, to $32.30. 

Citigroup rose $1.97, or 6.5 percent, to $32.29. 

But the stock market still has quite a ways to go before breathing easy
after this year's crisis in mortgages and the global financial industry's
tens of billions of dollars in debt-related losses. Unless the Dow makes
further gains this week, November will be the index's worst month since
September 2002. And as recently as Monday, the S&P 500 index was in negative
territory for the year. 

Advancing issues led decliners by about 7 to 1 on the New York Stock
Exchange, where consolidated volume came to 4.45 billion shares, compared
with 4.17 billion shares traded Tuesday. 

The Russell 2000 index of smaller companies rose 26.77, or 3.60 percent, to
770.04. 

Overseas, Japan's Nikkei stock average fell 0.45 percent. Britain's FTSE 100
rose 2.70 percent, Germany's DAX index rose 2.55 percent, and France's
CAC-40 rose 2.34 percent. 

New York Stock Exchange: http://www.nyse.com

 

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