Stocks rise following widely expected rate hike
NEW YORK (AP) – The Standard & Poor’s 500 and the Nasdaq composite index stretched to new three-year highs Tuesday as investors welcomed a possible software merger, and the Federal Reserve issued a widely expected interest rate hike. The Fed’s Open Market Committee raised the nation’s benchmark interest rate by a quarter percentage point to 2.25 percent, and released a statement that said low inflationary pressures should allow it to continue tightening rates at a “measured” pace. The language, nearly identical to the Fed’s Nov. 10 statement, was reassuring to investors, who sent stocks solidly after the announcement.
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 economists had expected. But while the numbers looked bad from a monetary point of view, 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, however, getting 2004’s final rate hike out of the way helped investors focus on other news.
The Dow Jones industrial average closed up 38.13, or 0.36 percent, at 10,676.45, extending Monday’s 95-point gain for its best close since Mar. 1.
Broader stock indicators also strode higher, putting in their best performances since the Sept. 11, 2001 terrorist attacks. The S&P 500 gained 4.70, or 0.39 percent, to 1,203.38, a level it hasn’t finished at since Aug. 8, 2001. The Nasdaq rose 11.34, or 0.53 percent, to 2,159.84, its highest close since June 29, 2001.
Advancing issues outnumbered decliners by almost 2 to 1 on the New York Stock Exchange. Preliminary volume came to 1.54 billion, compared to 1.44 billion traded Monday.
The Russell 2000 index of smaller companies was up 5.51, or 0.86 percent, at 643.54.
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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