Stocks hold steady after Fed’s ninth rate cut of year

By Lisa Singhania

Associated Press

NEW YORK – Stocks soared Tuesday in a last-minute rally that overcame Wall Street’s initially lukewarm response to the Federal Reserve’s ninth interest rate cut of the year.

Analysts said the advance reflected some optimism that, while lower rates won’t do much immediately for the suffering stock market, they should help business and the economy turn around in the longer term.

The Dow Jones industrial average closed up 113.76 at 8,950.59, according to preliminary calculations. The gains, which came chiefly in the last hour of trading, added to a rebound that began last week after the market’s huge post-attack selloff.

Broader indexes also were higher. The Standard &Poor’s 500 index rose 12.78 to 1,051.33, while the Nasdaq composite index was up 11.83 at 1,492.29.

“Volatility right after a Fed announcement isn’t surprising,” said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. “But the market understands that lower interest rates and the lower cost of capital will aid corporations when there is an economic upturn.

“People also understand that this is a move that will help business in 2002, not this quarter or next quarter.”

The Fed’s half-point cut had been widely anticipated because of the severe impact of last month’s terrorist attacks on the already weak economy. It was the second rate cut in just over two weeks.

In a statement accompanying Tuesday’s action, the Fed indicated the attacks had significantly heightened uncertainty and that there is a risk of economic weakness ahead.

That pessimistic tone might have contributed to the market’s initial quiet reaction to the rate cut, although the Fed was echoing what many economists have said since the attacks. Also, with the Fed funds rate now at 2.5 percent, it isn’t clear how much more there is to cut.

“From an economic standpoint, it’s pretty bleak. But from the standpoint of cutting rates in the future, this is positive,” Bill Barker, investment consultant with Dain Rauscher, said of the Fed’s statement. “They’re telling you that they’re going to keep lowering rates for as long as possible.”

The Dow was lifted by buying in manufacturing and retail components. Boeing rose $1.85 at $34.25, despite fears its airplane business will suffer as Americans curb their travel because of terrorism threats, while Wal-Mart gained $2.24 to $54.

Pharmaceutical stocks fell, though, including Johnson &Johnson, down 43 cents at $54.99, on profit-taking from last week’s big rally.

Tech stocks were less successful, though.

A third-quarter earnings warning from Compaq sent its stock down 17 cents to $8.16, in selling that spread to other computer-related businesses. Texas Instruments dropped $1.85 to $23.14, while Apple Computer lost 49 cents to $15.05.

The losses weren’t surprising given investors’ nervousness about third-quarter earnings, which are due out this month. Even before Sept. 11, those figures were expected to be poor, and now it’s anticipated they will be even more dismal – and companies still won’t be able to indicate when an improvement will come.

Wall Street is also waiting for more information about the U.S. response to the attacks, and how they will affect business.

All of the uncertainty, analysts say, adds up to a weak market where investors have more incentive to hold steady rather than make any big moves.

“It doesn’t mean we can’t move up a couple of hundred points, but I don’t see a new bull market. There’s just too much military and economy uncertainty,” said Larry Rice, chief investment officer at Josephthal &Co.

Advancing issues led decliners 2 to 1 on the New York Stock Exchange. Volume came to an active 1.26 billion shares, compared with 1.17 billion Monday.

The Russell 2000 index rose 4.17 to 401.77.

Overseas, Japan’s Nikkei stock average gained 1.7 percent. In Europe, Germany’s DAX index rose 0.9 percent, Britain’s FT-SE 100 was up 0.7 percent, and France’s CAC-40 gained 1.0 percent.