Nov 12, 2004 4 min read

By Michael J. Martinez AP Business Writer

NEW YORK (AP) – The Standard & Poor’s 500 index reached its highest close since the Sept. 11, 2001, terror attacks Thursday as stocks surged on the Federal Reserve’s upbeat assessment of the economy and a sharp drop in oil prices.

Continuing a rally that started before the presidential election, Wall Street enjoyed impressive gains after Wednesday’s Fed policy statement, which outlined an improving labor market and little danger of inflation. The Fed raised the benchmark interest rate a quarter percentage point to 2 percent, as was widely expected.

Falling oil prices also spurred buyers. A barrel of light crude was quoted at $47.42, down $1.44, on the New York Mercantile Exchange.

Despite the solid advance, trading was muted somewhat as the bond markets closed for the Veterans Day holiday. Bonds can have an impact on stock trading, and some analysts questioned whether Thursday’s rally would set the stage for further highs.

“You have to take today’s action with a grain of salt, what with bonds not trading today, but sure, it’s nice to see things moving up,” said Bryan Piskorowski, market analyst at Wachovia Securities. “But really, with the jobs report last week and the Fed move, the market’s still treading water, and we’re going to need another catalyst to break out higher.”

According to preliminary calculations, the S&P 500 was up 10.57, or 0.91 percent, at 1,173.48, its best showing since Aug. 27, 2001.

Other stock indicators also rose substantially. The Dow Jones industrial average rose 84.36, or 0.81 percent, to 10,469.84, its best closing level since June 23. The Nasdaq composite index gained 26.71, or 1.31 percent, to 2,061.27. The Nasdaq last closed above that level on April 12.

After three days of minimal moves, the major indexes saw a resurgence of the rally first spurred by a relatively smooth presidential election, continuing drops in crude oil futures and a better-than-expected jobs report on Friday. November and December are also traditionally the strongest months for the stock market.

Despite the gains, the volume of shares traded dropped off from recent sessions, and analysts said many investors were waiting to see whether there would be a selloff based on profit taking – or whether stocks would defy conventional wisdom and move higher.

“I see a lot of people waiting for a normal retracement before they enter back into this market, but the market sometimes will do something just to confound as many people as it can,” said Bill Groenveld, head trader at vFinance Investments. “We’re definitely in a buyer’s market, and either way it goes, people are staying in and watching things pretty close with their finger on the trigger.”

Tech stocks rose despite disappointment with Cisco Systems Inc.’s quarterly report. While profits were in line with Wall Street expectations, revenues failed to meet analyst forecasts, leading some to worry about future sales strength. Cisco, which fell sharply on Wednesday, regained 30 cents to $18.74.

PeopleSoft Inc. was down 36 cents to $22.43 after its board rejected Oracle Corp.’s latest $9.2 billion bid to take over the rival software company. Board members said the $24-per-share offer undervalued PeopleSoft. Oracle lost 24 cents to $13.14.

In other merger news, Hollywood Entertainment Corp., owner of the Hollywood Video rental chain, surged $1.13, or 11.5 percent, to $10.93 as rival Blockbuster Inc. launched a $700 million takeover bid. Blockbuster said it would be willing to pay $11.70 per share for Hollywood. Blockbuster rose 82 cents to $8.20 on the news.

Dow component Intel Corp. said 30-year company veteran Paul Otellini would succeed Craig Barrett as chief executive officer of the company. Barrett will become chairman of the chip maker, while current chairman Andy Grove will take the role of senior adviser to the board and management. Intel gained 31 cents to $23.17.

Coca-Cola Co., another Dow component, said it was cutting back its long-term sales and profit targets, due to sales slumps in key markets, including Germany, North America and the Philippines. Coca-Cola lost 11 cents to $40.96.

Retailer Target Corp. shed 21 cents to $50.77 after it announced earnings in line with Wall Street forecasts. Target saw a 78 percent jump in third quarter earnings, but much of the gains were fueled by the sale of its Mervyn’s department store unit.

Starbucks Corp. saw a 49 percent rise in its quarterly earnings, but disappointed investors with a future profit outlook that came in below expectations. Starbucks nonetheless gained 15 cents to $55.44 after languishing in negative territory most of the session.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume was moderate.

The Russell 2000 index of smaller companies was up 6.69, or 1.1 percent, at 616.30.

Overseas, Japan’s Nikkei stock average tumbled 1.35 percent. In Europe, Britain’s FTSE 100 closed up 0.9 percent, France’s CAC40 gained 1.29 percent for the session, and Germany’s DAX index rose 1.02 percent.

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On the Net:

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

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

AP-ES-11-11-04 1625EST