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Interest Rate Hike Sends Stocks Higher

Posted on: Tuesday, 14 December 2004, 15:00 CST

NEW YORK - Stocks moved higher Tuesday as the Federal Reserve issued a widely expected interest rate hike, and investors welcomed the prospect of a merger in the software industry.

Using language nearly identical to the statement it issued on Nov. 10, the Fed's Open Market Committee raised the nation's benchmark interest rate by a quarter percentage point to 2.25 percent. Stocks moved solidly into positive territory on the news, as buyers who had stuck to the sidelines ahead of the announcement returned to the market

Wall Street had been disappointed earlier in the day by the latest reading of the nation's trade deficit, which surged to a record $55.5 billion in October. Continued demand for Chinese imports and the high cost of oil contributed to the growing deficit, which was much larger than the $52.4 billion Wall Street had expected. But while the numbers looked bad from a monetary perspective, they showed continued consumer spending, which some took as a bullish sign.

The Fed's latest move suggests there is "a green light for further rate increases," said Hans F. Olsen, chief investment officer at Bingham Legg Advisers, who thinks the markets are already anticipating a series of gradual hikes to at least 3 percent next year. In the near-term, getting 2004's final rate hike out of the way helped investors focus on the day's other news.

"There seems to be a reawakening of merger and acquisition activity, and signs are there that people are continuing to spend at a healthy clip," Olsen said. "Put those two things together, and this rate increase, which was widely expected, and whatever surprises the market has seen have been pleasant surprises."

In the final hour of trading, the Dow Jones industrial average was up 52.91, or 0.50 percent, at 10,691.23, extending Monday's 95-point gain.

Broader stock indicators were also higher. The Standard & Poor's 500 index gained 6.16, or 0.51 percent, to 1,204.84, rising to a level where it hasn't traded since August of 2001. The Nasdaq composite index rose 13.45, or 0.63 percent, to 2,161.95.

Adding to the market's upbeat mood, oil prices appeared to be holding steady in the $41 range. Light, sweet crude for January delivery was up 81 cents, or 2 percent, at $41.82 per barrel on the New York Mercantile Exchange, nearly $14 cheaper than the record settlement price of $55.17 set in October.

Buoying tech stocks, The New York Times reported that Symantec Corp. was in talks to acquire Veritas Software Corp. for $13 billion. A deal could be announced later this week, the newspaper said. Symantec tumbled $5.30, or 16 percent, to $27.56, and Veritas surged $2.07, or 8.2 percent, to $27.26.

Verizon Communications Inc. shed 33 cents to $40.95 on reports that the company's wireless arm would offer $36 billion for Nextel Communications Inc., topping Sprint Corp.'s $35 billion offer. Nextel slumped 19 cents to $29.80, while Sprint climbed 57 cents to $25.01.

American Express Co. gained $1.22 to $56.26 after landing a major credit card distribution pact with Citigroup, part of the company's effort to co-market its cards with a variety of financial institutions. Citigroup was up 21 cents at $46.98 on the news.

Merck & Co. added 42 cents to $29.47 after filing a statement with regulators that outlined plans to cut an additional 700 jobs before the end of the year, adding to the 4,400 job cuts already planned.

Home accessories retailer Pier 1 Imports Inc. soared $1.23, or 6.9 percent, to $19.09, after reporting it had earned 22 cents per share in the latest quarter, matching Wall Street expectations. The company's outlook for future profits was also in line with analysts' estimates.

Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange. Volume came to 1.18 billion shares, compared with 1.09 billion at the same point on Monday.

The Russell 2000 index of smaller companies was up 5.34, or 0.84 percent, at 643.37.

Overseas, Japan's Nikkei stock average surged 1.17 percent. In Europe, Britain's FTSE 100 closed down 0.30 percent, France's CAC-40 gained 0.22 percent and Germany's DAX index added 0.29 percent.

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On the Net:

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

Nasdaq Stock Market: http://www.nasdaq.com

Source: Associated Press/AP Online

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