November 15, 2006 in Business

Markets surge on Fed rate comments

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Wall Street barreled higher Tuesday, with the Dow Jones industrials surging further into record territory after a Federal Reserve official indicated the Fed will maintain its policy of stable interest rates.

Investors who were heartened by an earlier report of slowing producer prices began buying in earnest after Federal Reserve Bank of St. Louis President William Poole described the Fed’s interest rate policy as “about right.” Poole, who currently sits on the Fed’s policy-making Open Market Committee, had reassuring words for a market that has been counting on a steady rate policy for the near future.

Earlier, the Labor Department said inflation at the wholesale level as measured by the Producer Price Index dropped by 1.6 percent last month following a 1.3 percent slide in September. Plunging energy prices were behind the declines, which gave Wall Street some relief from concerns that rising inflation might prompt the Fed to raise rates after three straight meetings where they were left unchanged.

“With the PPI down and with the Fed cautiously optimistic about the economy, not signaling any rate hikes, it confirmed what the market was hoping to hear,” said Jay Suskind, head trader at Ryan Beck & Co.

The Dow rose 86.13, or 0.71 percent, to close at 12,218.01, above the previous record close of 12,176.54 reached last Wednesday. The blue chips also reached a new trading high of 12,228.01.

Broader stock indicators also closed sharply higher. The Standard & Poor’s 500 index rose 8.80, or 0.64 percent, to 1,393.22. It hit a trading high of 1,394.49; this was the first time the S&P 500 surpassed 1,394 since November 2000.

The Nasdaq composite index rose 24.28, or 1.01 percent, to 2,430.66.

Bonds rose on the inflation news, with the yield on the benchmark 10-year Treasury note falling to 4.57 percent from 4.59 percent late Monday. The dollar rose against other major currencies, while gold prices slipped.

Light sweet crude oil prices slipped 30 cents to settle at $58.28 a barrel on the New York Mercantile Exchange.

Before Poole’s comments, investors sifted through economic reports, which also included a second straight monthly drop in retail sales during October. The 0.2 percent decline reported by the Commerce Department report reflected the 25 percent drop in crude oil prices since mid-July rather than a weakness in consumer spending. The drop in sales was also smaller than expected.

The Russell 2000 index of smaller companies rose 12.65, or 1.64 percent, to 785.06. That beat its previous high close of 781.83, reached last May 8.

Advancing issues outnumbered decliners by nearly 3 to 1 on the New York Stock Exchange, where volume came to 1.71 billion shares, down from 2.41 billion shares.

Overseas, Japan’s Nikkei stock average closed up 1.11 percent. Britain’s FTSE 100 closed down 0.12 percent, Germany’s DAX index closed down 0.10 percent, and France’s CAC-40 closed down 0.26 percent.

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