NEW YORK – A jittery Wall Street advanced Monday, reversing some of Friday’s sharp losses as investors took a dismal new home sales report as a sign the Federal Reserve will lower rates this week.
The Dow Jones industrial average rose more than 176 points in a session that was relatively calm when compared to the turbulence of last week.
On the surface, the advance appeared surprising after the Commerce Department reported sales of new homes in December fell by 4.7 percent and that 2007 new home sales plunged by a record 26.4 percent compared to 2006. But while the report at first exacerbated the market’s concern that the housing and mortgage crises are causing a recession, it also raised hopes that the Fed might cut rates again by a wide margin to stoke the weakening U.S. economy.
“Anticipation of another Fed rate cut is the main magnet in the market today,” said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc.
He was skeptical the gains would stick – anything the Fed decides after its two-day meeting lets out Wednesday could be met with disappointment. If the rate cut is small or nonexistent, the market will likely be unsatisfied; if the cut is wide, the market may worry the economy is worse than it thought.
The Dow rose 176.72, or 1.45 percent, to 12,383.89 after falling as many as 95 points in morning trading. On Friday, the blue chip index tumbled 171 points after a two-day advance of more than 400 points.
Broader stock indicators also advanced Monday. The Standard & Poor’s 500 index rose 23.36 or 1.76 percent, to 1,353.97, while the Nasdaq composite index rose 23.71, or 1.02 percent, to 2,349.91.
The Russell 2000 index of smaller companies rose 13.79, or 2.00 percent, to 702.39.
Asian trading saw steep losses as investors reacted to Friday’s U.S. trading. In Tokyo, the Nikkei stock average dropped 4 percent and a key index in Shanghai plunged 7.2 percent. In late trading in Europe, London’s FTSE 100 fell 1.36 percent, Frankfurt’s DAX rose 0.03 percent and Paris’s CAC 40 lost 0.61 percent.