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Stocks Build On Gains, But Oil Hits Record High

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The Associated Press

Published: September 20, 2007

NEW YORK - Wall Street built on its gains Wednesday as investors bet that cheaper money the Federal Reserve unleashed with its decision to cut interest rates will give a boost to corporate profits and the overall economy.

The rise in stocks for a second day appeared to reassure some investors that Tuesday's huge advance was based on reasonable optimism and amounted to more than a one-day pop.

Wall Street, focusing on the Fed's move to lower the target federal funds rate to 4.75 percent from 5.25 percent, was able to again look past rising energy prices. Oil settled at a fresh record Wednesday.

'They're really trying to get ahead of this thing to make sure we don't slip into a recession,' said Joe Vietri, vice president of active trading and investing at Charles Schwab & Co., referring to the Fed. 'Certainly this is going to have a positive impact on corporate profits.'

The Dow Jones industrials rose 76.17, or 0.55 percent, to 13,815.56. Although the Dow finished well off its highs of the session, the gains came a day after a jump of nearly 336 points - its biggest one-day point gain in nearly five years.

Broader stock indicators also rose. The Standard & Poor's 500 index rose 9.25, or 0.61 percent, to 1,529.03. The Nasdaq composite index rose 14.82, or 0.56 percent, to 2,666.48.

The recent gains leave the Dow only 1.3 percent below its closing high of 14,000.41 set two months ago. The S&P, which also saw a record close July 19, is 1.6 percent below that level. The Nasdaq, down about 2 percent from mid-July, is well-below the levels it reached amid the dot-com bubble early in the decade.

The Russell 2000 index of smaller companies was a big gainer Wednesday. It rose 10.77, or 1.34 percent, to 817.40. Small-cap stocks took a hit in Wall Street's recent retrenchment as investors often regard bigger companies as better able to weather an economic downturn because of substantial overseas operations and an ability to skate by on thinner profit margins.

Bonds ended sharply lower Wednesday as investors moved more money from fixed income investments to stocks. The yield on the benchmark 10-year Treasury note rose to 4.52 percent from 4.47 percent at Tuesday's close.

Economic data supported a case for pushing stocks higher. The August consumer price index and core CPI, which excludes often volatile food and energy prices, came in as expected. The core CPI advanced 0.2 percent.

Home Building At 12-Year Low

The Commerce Department reported that construction of new homes and apartments dipped last month by 2.6 percent to a seasonally adjusted annual rate of 1.331 million units, the slowest pace in 12 years.

In August, commodity prices fell as investors drew cash out of riskier assets and moved into safer government securities. But crude oil prices are back at record highs, moving briefly above $82 per barrel Wednesday. Light, sweet crude settled up 42 cents at $81.93 per barrel on the New York Mercantile Exchange. The record came a day after oil closed above $81 for the first time.

The dollar slumped to a new low against the euro Wednesday. The dollar was mixed against other major currencies. Gold prices rose, extending their Tuesday gains.

'I would have thought that based on prior pattern, we wouldn't have seen this kind of follow-through,' Vietri said of the market's advance Wednesday. But he remains cautious. 'I'm certainly not thinking that we're in a long-term bull market here.'

Inflation Worries Analyst

'I think investors are, in general, thinking there's a better chance of the economy improving than there was a week ago,' said J. Bryant Evans, Cozad Asset Management portfolio manager. But inflation worries him. 'Down the road we might see this as helping the economy, but it could also help inflationary pressures. That is the thing that the Fed is weighing: help the economy by reducing rates versus inflation.'

Advancing issues outnumbered decliners by about 2-to-1 on the New York Stock Exchange, where volume came to 1.67 billion shares compared with 1.65 billion shares traded Tuesday.

Overseas, Britain's FTSE 100 rose 2.81 percent, Germany's DAX index gained 2.32 percent, France's CAC-40 rose 3.27 percent, Japan's Nikkei index advanced 3.67 percent and Hong Kong's Hang Seng index rose 3.98 percent.

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