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Dow Ends Higher On Hope Fed Will Cut Interest Rate

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The Associated Press

Published: September 5, 2007

NEW YORK - Wall Street extended its rebound from the big summer slump Tuesday after dips in manufacturing growth and construction spending raised investors' hopes for an interest rate cut.

The market also got a boost as investors bought technology stocks viewed as bargains after being battered during last month's sell-off. Tech and telecom are still seeing takeover activity despite credit concerns, and demand for computers, cell phones and other such products appears strong.

Although Tuesday's economic data came in a bit slower than anticipated, the market built on the sharp gains it made Friday. Ahead of Labor Day weekend, Federal Reserve Chairman Ben Bernanke said the central bank stood ready to 'act as needed' to prevent credit troubles from hurting the national economy - which investors thought hinted at the Fed's willingness to lower rates.

When investors returned from the long weekend, the Institute for Supply Management said the manufacturing sector expanded more slowly in August than in July, and the Commerce Department said construction activity fell in July by 0.4 percent. Wall Street was pleased the snapshots were neither too weak nor too strong - suggesting the economy isn't falling apart, but the Fed will be inclined to cut the benchmark federal funds rate when it meets Sept. 18, after more than a year of holding rates steady.

'We haven't had anything happen to change that outlook,' said Arthur Hogan, chief market analyst at Jefferies & Co. 'Everything still points to a Fed that could lower rates.'

In recent weeks, more difficult access to credit has made it harder for consumers and businesses to borrow, raising fears that tighter access to money will hurt the economy.

The Dow Jones industrial average rose 91.12, or 0.68 percent, to 13,448.86. The blue-chip index is about 4 percent below its July 19 record close of 14,000.41, but about 4.7 percent above its summer closing low of 12,845.78 reached Aug. 16.

August Sales Boost GM 3.8%

The biggest gainer among the 30 Dow companies was General Motors Corp., which rose $1.18, or 3.8 percent, to $31.92 after reporting a surprising increase in August sales.

Broader stock indicators also advanced. The Standard & Poor's 500 index added 15.43, or 1.05 percent, to 1,489.42, and the technology-dominated Nasdaq composite index surged 33.88, or 1.30 percent, to 2,630.24.

In keeping with its promise to aid the markets as needed, the Fed on Tuesday added a relatively moderate $5 billion to the banking system through a repurchase agreement.

Further bolstering the argument for a rate cut, U.S. Federal Reserve Bank directors, in minutes released Tuesday from three discount rate meetings from July 9 to Aug. 6, said a contracting U.S. housing market posed a risk to growth.

Bond prices slipped as stocks gained. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.55 percent from 4.53 percent late Friday.

Advancing issues outnumbered decliners by about 12 to 5 on the New York Stock Exchange, but trading was still relatively light. Consolidated volume came to 2.76 billion shares, up only modestly from Friday's 2.69 billion.

Although the stock market appeared stable Tuesday, Wall Street is entering one of its historically most difficult months as investors return from their vacations and reassess their holdings.

Storms Swell Crude Futures

Stocks in the energy sector surged as New York Mercantile Exchange crude futures rose $1.04 to $75.08 a barrel on the possibilities of the hurricane season intensifying and OPEC deciding not to raise production when it meets next week.

The Russell 2000 index of smaller companies rose 7.83, or 0.99 percent, to 800.69.

Overseas, Japan's Nikkei stock average fell 0.63 percent. Britain's FTSE 100 rose 0.98 percent, Germany's DAX index rose 0.96 percent, and France's CAC-40 rose 0.38 percent.

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