Stocks rally after Fed says economy could be improving

Wednesday, January 30, 2002

AP Business WriterNEW YORK (AP) -- The Federal Reserve gave Wall Street Wednesday the positive economic outlook investors have been seeking, and stocks rallied even though the central bank declined to lower interest rates again.

Investors have been anxiously awaiting word that the recession has ended, and a Fed statement that "economic activity is beginning to firm" brought buyers back into the market. The market's upturn contrasted with lackluster trading earlier Wednesday and with a big selloff Tuesday, when investors ditched shares on concerns about companies' accounting practices.

"The Fed gave out some positive signals. The Fed indicated there are signs of improving economic activity. The comment was made that while we are not yet out of the woods, the recession could be shallow," said Alan Ackerman, executive vice president of Fahnestock & Co. "There is a sense of buying opportunity here."

The Dow Jones industrial average closed up 144.62, or 1.5 percent, at 9,762.86, according to preliminary calculations. Analysts said bargain hunting was also a big contributor to the market's advance. The Dow tumbled 247.51 on Tuesday amid investors' worries about companies accounting practices, concerns that have festered following the collapse of Enron last month.

The broader market also finished higher, after trading lower for most of Wednesday. The Nasdaq composite index recovered from an earlier loss and rose 20.43, or 1.1 percent, to 1,913.42 following Tuesday's 50-point drop. The Standard & Poor's 500 index gained 12.93, or 1.2 percent, to 1,113.57 after falling 32 Tuesday.

Until the Fed's midafternoon announcement, investors were uninspired by an uptick in the economy, which grew at a 0.2 percent annual rate in the fourth quarter, according to the Commerce Department. The increase could mean economists will consider the recession to have ended late last year or early 2002.

The Fed, which cut rates 11 times last year and down to their lowest level in four decades, was expected to leave rates unchanged. Investors were more concerned about what the Fed would say about the condition of the economy.

The Fed's optimistic assessment lifted stocks broadly. Home Depot rose $2.07 to $49.07, Honeywell gained $2.06 to $32.96 and J.P. Morgan Chase advanced $1.01 to $33.06.

Kraft Foods, which raised 2002 earnings projections beyond beyond analysts' expectations, rose $1.46 to $35.50.

The tech sector, which has suffered the brunt of the economic downturn, was also strengthened. IBM rose $2.55 to $105.55 and Intel climbed $1.18 to $33.86.

But indications that business has yet to improve weighed on certain stocks. Trendy clothing manufacturer Tommy Hilfiger fell $2.48 to $12.65 after saying fiscal 2003 revenue will be flat when compared with 2002.

AT&T stumbled 36 cents to $17.45 after the telecom company said it expected a slight acceleration in the rate of revenue decline for the first quarter, compared with a year ago.

Analysts said it was difficult to determine how much of Wednesday's rally was attributable to the Fed's news and how much to an expectable rebound following Tuesday's drop.

"The pessimism experienced in the last couple of days was probably putting a little too much emphasis on negative headlines and ... extrapolating those problems to other industries. Right now, you have a little boomerang effect from that as investors see buying opportunities," said Charles G. Crane, strategist for Victory SBSF Capital Management.

Advancing issues led decliners 3 to 2 on the New York Stock Exchange. Volume was heavy.

The Russell 2000 index, the barometer of smaller company stocks, rose 5.74, or 1.2 percent, to 479.72.

Overseas, markets were lower Wednesday with Japan's Nikkei stock average finishing down 1.1 percent. In Europe, France's CAC-40 finished down 1.4 percent, Britain's FT-SE 100 fell 0.9 percent, and Germany's DAX index declined 0.6 percent.

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