Rate Hike Taking Shape but Stocks Keep Marching

Tomorrow promises Fed action, but early indications have a rally starting this morning.
Author:
Publish date:

Interest rates be damned -- stocks aren't flinching this morning.

At 9:05 a.m. EDT, the

S&P 500

futures were up 7.4 to 1347.6, about 7 points above fair value and indicating a strong open. That early strength, however, will have to hold up in the face of an all-but-certain rate hike at tomorrow's

Federal Open Market Committee

. A

Bloomberg News

survey of 30 U.S. primary dealers shows everybody but

Bear Stearns

expects the Fed to raise rates by 25 basis points.

Nonetheless, emboldened by the benignity of the most recent

Producer Price Index

and

Consumer Price Index

, some in the market have been talking recently to the effect that the Fed will stand pat tomorrow. That view might be leading some to make bullish bets today.

But with so many market players on the sidelines or even out of town, the market may get tugged around in both directions by range-bound stock futures. "I see most of the day

range-bound between 1333 and 1352" on the September S&P 500 futures contract, said Chuck Farra, president of

Global Trading

. "If it goes through either of those, you may see an extra 5- to 10-point extension outside of that."

Farra said he doesn't expect much to happen until 2:15 p.m. EDT tomorrow, when the Fed posts any change it makes in interest rates. "There's not a lot of big bets going into today about which way the Fed's going to go tomorrow." Because of that, and depending on what the Fed does, Farra is looking for a big move up or down tomorrow as market players scramble to get back into the market.

In the meantime, keep one eye on the 30-year Treasury bond yield. Stocks have been reacting poorly lately whenever it's moved above 6%. The long bond was lately off 2/32 to 101 28/32, its yield rising to 5.989%.

For the second straight session in Tokyo, stocks benefited from the positive sentiment generated by Friday's news that

Industrial Bank of Japan

,

Dai-Ichi Kangyo Bank

and

Fuji Bank

will form a banking alliance that would boast assets of $1.3 trillion. The

Nikkei

advanced 135.44, or 0.8%, to 18,233.55.

Foreign buying in Japanese stocks helped bring the dollar as low as 110.77 midway through the trading session in Tokyo. The greenback was lately quoted at 111.11 yen.

It's still not clear exactly how much yen strength would provoke the

Bank of Japan

to intervene. Japan's Administrative Vice Finance Minister Nobuaki Usui told reporters today that premature yen strength could threaten Japan's nascent economic recovery, stressing the need for foreign-exchange stability and the

Ministry of Finance's

readiness to "take steps" if necessary. On television yesterday, however, Minister of Finance

Kiichi Miyazawa

downplayed the notion that speculators are the main cause of the yen's recent rise, suggesting that intervention may not be imminent.

Typhoon Sam kept stocks on a short leash overnight in Hong Kong, as the storm's aftermath kept the local market closed for the morning session. Stocks surged in sympathy with Tokyo when the afternoon session opened, but retraced their steps toward the close as investors took profits ahead of tomorrow's FOMC meeting in the U.S. The

Hang Seng

picked up a scant 6.92 to 13,834.89.

Upbeat global sentiment -- something that has been fairly pronounced since the IBJ alliance was announced last week -- was taking all the big European bourses solidly higher toward midday. London's

FTSE

was up 101.6, or 1.6%, to 6282.4, while the Paris

CAC

was 17.12 higher to 4489.12. Frankfurt's

Xetra Dax

was up 47.74, or about 0.9%, to 5301.88 amid a report in

Der Spiegel

that

Deutsche Bank

and

Dresdner Bank

were in talks to merge their retail operations.

Mergers, acquisitions and joint ventures

Continuing the consolidation trend in the world of utilities,

Carolina Power & Light

(CPL) - Get Report

agreed to buy

Florida Progress

(FPC)

for about $5.3 billion in cash and stock. The deal values Florida Progress at $54 a share, a juicy premium over its Friday closing price of 44 5/8.

Centura Banks

(CBC)

is buying

Triangle Bancorp

(TGL)

in a stock swap valued at $608.4 million. Centura expects the acquisition to be accretive to earnings per share in 2001.

PSINet

(PSIX)

is buying

Transaction Network Services

(TNI)

in a deal it values at $720 million.

Peninsular & Oriental Steam Navigation

of Britain denied it received a buyout offer worth about $11 billion from

Carnival

(CCL) - Get Report

, the world's biggest cruise operator. P&O's comments rebutted a report in Britain's

Mail on Sunday

, which reported that P&O had rejected the bid.

Suez Lyonnaise des Eaux

is buying

United Water Resources

(UWR)

, the second-largest water distributor in the U.S., for $35 a share. United Water closed Friday at 31 1/16.

Sun Microsystems

(SUNW) - Get Report

is buying

Forte Software

(FRTE)

in a deal valued at $540 million.

Textron

(TXT) - Get Report

is acquiring

OmniQuip International

(OMQP)

for $21 a share in cash, a hefty premium to its close of 13 1/8 on Friday.

Analyst actions

PaineWebber

upgraded

American Residential

(INV)

to buy from attractive.

Warburg Dillon Read

upgraded

Duke Energy

(DUK) - Get Report

to buy from hold.

Warburg Dillon Read initiated coverage of

Lennox International

(LII) - Get Report

with a strong buy rating and a price target of 25. The stock closed Friday at 17.

PaineWebber upgraded

Nabisco Holdings

(NA)

to attractive from neutral.

Miscellany

AT&T

(T) - Get Report

set a multiyear pact valued at more than $400 million with

AlliedSignal

(ALD)

. The deal calls for

AT&T Solutions

, AT&T's professional services division, to provide global networking management and standardize communications technology capabilities across AlliedSignal's infrastructure.

The Wall Street Journal

, citing people familiar with the matter, reported that law-enforcement authorities are probing whether

Bank of New York

(BK) - Get Report

was among a chain of banks that served as conduits for about $200 million that may have been diverted from loans to Russia made by the

International Monetary Fund

.