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Stocks Rise On Prospect Of Lower Interest Rates

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The Associated Press

Published: September 28, 2007

NEW YORK - Stocks extended their gains Thursday with a moderate advance as investors weighed fresh economic data, including a sharp drop in new home sales, for clues to whether more interest rate cuts are in the offing.

Although concerns that housing market ills could drag the broader economy into a recession have bubbled up in recent months, the Federal Reserve's larger-than-expected interest rate cut last week appears to have left investors hopeful that cheaper capital would help stave off a broad slowdown.

With the final trading day of the quarter today, some investors likely engaged in buying and selling designed to spruce up their portfolios.

'You have positioning for the family photo,' said Erik Davidson, senior director of investments at Wells Fargo Private Bank. He noted that as investors go about the usual business of shoring up their positions for the end of the quarter some have been surprised by the absence of further bad news about tightness in the credit markets or about investments soured by bad mortgages.

'It's almost a return to normalcy. This is a bit of a relief rally, and the bad things that people are afraid of aren't really happening,' he said of gains in recent sessions.

The Dow Jones industrial average rose 34.79, or 0.25 percent, to 13,912.94. The Dow is only about 87 points below its record close of 14,000.41 set July 19.

Broader indexes also advanced. The Standard & Poor's 500 index rose 5.96, or 0.39 percent, to 1,531.38, the technology-heavy Nasdaq composite index rose 10.56, or 0.39 percent, to 2,709.59, and the Russell 2000 index of smaller companies rose 4.89, or 0.60 percent, to 814.01.
Bond Yields Fall; Crude Oil Soars
Bond prices rose, pushing the yield on the benchmark 10-year Treasury down to 4.57 percent from 4.62 percent at Wednesday's close.
Crude oil prices rose as a tropical system near Mexico raised concerns about possible disruptions to oil and gas production. A barrel of light, sweet crude jumped $2.58 to settle at $82.88 a barrel on the New York Mercantile Exchange.

Dave Hinnenkamp, chief executive of KDV Wealth Management in Minneapolis, said that with the Dow not far off its highs, some investors appear to be growing more confident.

'A lot of it has to do with people sitting on the sideline with some cash when the market was coming down,' he said. 'And now that they've seen it bounce up, I think some of it has to do with people diving back into the market not wanting to miss the rally.'

Wall Street saw a relatively calm session despite some potentially unnerving economic news, including a report that the U.S. economy proved a little softer during the second quarter than had been estimated. The Commerce Department said gross domestic product expanded at a 3.8 percent annual rate in the second quarter, less than the previously reported 4 percent increase.

Unemployment Claims Decline

However, there was some strong news about the nation's labor force Thursday. Jobless claims fell 15,000 to 298,000 in the week ended Sept. 22, the lowest level since May and an indication the labor market remains solid.

A strong job market is important to Wall Street, which is counting on continued strength in consumer spending to drive the economy.

The reports followed others issued this week that suggested the economy faces obstacles, which could persuade policymakers to lower rates further when they meet at the end of next month. Lower rates make cash cheaper to borrow, so they tend to fuel spending and merger-and-acquisition activity.

'The fact that the Fed has cut a half point, I think it shows that they are willing to act. That is one of the most important things in that it gives the investor community reason to act,' Hinnenkamp said. 'I think one of the more important factors with regard to where we go from here is the upcoming earnings season.'

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