Confident Investors Boost Stocks

Stocks rallied broadly Friday, boosting the Nasdaq market to its first new high since January, as investors grew confident that Federal Reserve policy has swung away from raising interest rates.

The Dow Jones industrial average rose 87.78 to 7,345.91, beating last Thursday’s record close at 7,333.55 and gaining 151.24 for the week.

The Standard & Poor’s 500 and the New York Stock Exchange composite index also jumped to new highs, but most notable was the Nasdaq composite index’s return to record territory after a four-month drought.

The Nasdaq market is dominated by smaller companies, which have continually lagged the blue-chip sector for the past year, especially in the aftermath of sharp market declines like those seen last summer and earlier this spring. Similarly, the Russell 2000 list of smaller companies had only returned to record levels on Thursday.

“The good news is that the market continues to advance broadly, indicating there’s enough money coming in to float most stocks,” said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co., “You needed to see some broadening of the advance to make it sustainable.”

In the absence of any fresh economic news to aggravate the market’s lingering inflation jitters, interest rates held steady in the bond market after creeping toward worrisome levels during the prior two sessions.

Analysts said investors were encouraged by newly published minutes from the Federal Reserve’s strategy meeting on March 25, when central bank officials raised a key short-term lending rate.

The move was designed to ease inflationary trends by slowing the economy, but stocks fell sharply amid concerns the Fed would raise rates repeatedly, hurting company profits.

But the minutes from the meeting, published Thursday afternoon, revealed that in raising rates, Fed policy makers acknowledged that inflation “remained remarkably subdued,” and suggested that inflationary pressures “could well begin to wane soon, if they had not already begun to do so.”

Bonds had been struggling since Tuesday, when Federal Reserve officials passed on a chance to raise short-term interest rates again.

Bond traders worried that the Fed had succumbed to political pressure to let the economy grow, but would soon need to raise rates again anyway or risk rapid inflation, which can make fixed-income investments less appealing. The minutes from the March meeting helped alleviate those fears.

“The most important piece of news this week was not the Fed’s decision to leave rates unchanged, but when they released the minutes, which said they removed their bias toward tightening credit right after they tightened,” said Jeffrey Applegate, chief investment strategist at Lehman Brothers.

Overseas, Tokyo’s Nikkei stock average rose 0.7 percent, Frankfurt’s DAX index rose 0.6 percent and London’s FT-SE 100 rose 0.2 percent.