Fed Heads Inspire Rally

The averages surge after a pair of Fed presidents speak dovishly.
Author:
Publish date:

Updated from 4:11 p.m. EST

Stocks ended solidly higher Tuesday as oil declined and commentary from two

Federal Reserve

presidents suggested to traders that the central bank might be near the end of its 21-month rate-hiking campaign.

The

Dow Jones Industrial Average

rose 58.91 points, or 0.53%, to 11,203.85, and the

S&P 500

gained 8.12 points, or 0.63%, to 1305.93. The

Nasdaq Composite

added 8.62 points, or 0.37%, to 2345.36, a new five-year high for the index.

The Dow was led by a gain of 2.5% in

Caterpillar

(CAT) - Get Report

. Since Friday, the stock has added almost 5% and has helped to counterbalance a two-day, 8.1% decline in shares of

General Motors

(GM) - Get Report

.

"The market reacted to lower oil prices," said James Park, managing director with Rodman & Renshaw. "We're going to be more based on interest rates and commodity prices for a while. There was less volatility, and trading was more uniform today."

About 1.50 billion shares traded on the

New York Stock Exchange

, with advancers beating decliners by a 9-to-7 margin. Trading volume on the Nasdaq was 2.02 billion shares, and winners tied losers.

Richard Fisher, the Dallas Fed president whose ponderings

about baseball and other matters have moved markets in the past, essentially said in a speech that the Fed can tolerate a lower U.S. jobless level than it previously did, thanks to the global economy and productivity gains.

He implied that the Phillips curve, which says declining unemployment eventually produces inflation, might not have the relevance it once did.

"I personally conclude that we need to redraw the Phillips curve and rejig the equations that inform our understanding of the maximum sustainable levels of U.S. production and growth," he said. The March employment report, a highly anticipated indicator every month, will arrive Friday.

Separately, Richmond Fed President Jeffrey Lacker gave a talk in which he said growth is proceeding on "a solid pace" this year, but that "inflation is low and stable." In particular, Lacker said the price index for core personal consumption expenditures, a favorite Fed indicator, showed inflation well-contained.

Traders liked what they heard. The broad averages had stayed close to the flatline early in the session, but thoughts of a dovish Fed brought in the buyers.

Elsewhere, the dollar was weaker against the yen and the euro after a senior Chinese official said China should trim its holdings of U.S. debt,

Reuters

reported. The comments come ahead of a visit by President Hu Jintao to Washington this month.

To view Gregg Greenberg's video take on today's market, click here

.

At current levels, the yield on the 10-year Treasury note is at its highest point since June 2004, as traders have fretted that strong economic data will prevent the Fed from halting its rate increases. The 10-year Treasury bond was down 1/32 in price and yielding 4.87%.

Front-month crude eased a day ahead of U.S. data on crude inventories. On Monday, crude prices came close to a two-month high before settling just below the $67 level. Crude for May delivery slid 51 cents to close at $66.23 a barrel.

Despite oil's decline, the Philadelphia Oil Service Sector index and the Amex Oil index rose more than 1% each. In other market groups, the Amex Airline index and the Philadelphia/KBW Bank Sector index both tacked on 1.2%, while the S&P Retail index rose 1.1%.

Metals were lower across the board. Silver ended down 3 cents to $11.73 an ounce, and gold futures fell $3.70 to $50.60 an ounce.

On the corporate side, a jury in New Jersey has started deliberations in the latest Vioxx case involving

Merck

(MRK) - Get Report

. Two plaintiffs in the lawsuit say that Merck's arthritis drug, which the company took off the market in September 2004, led to their heart attacks.

Separately, Merck raised its first-quarter forecast, citing sales of Zocor, but left its full-year guidance unchanged. Merck gained 7 cents, or 0.2%, to $35.48.

Computer Sciences

(CSC)

said it has decided to explore its strategic alternatives, including a possible sale of the company. The company also said it would cut about 4,300 jobs in fiscal 2007 and around 700 workers in fiscal 2008. Most of the cuts will be in Europe, and Computer Sciences will record pretax restructuring charges of about $345 million in fiscal 2007 and $30 million the next year.

Shares of Computer Sciences rose $2.51, or 4.4%, to $59.80.

Investment bank

Merrill Lynch

(MER)

now expects first-quarter earnings to be reduced by $1.2 billion after taxes, citing the new accounting standards for recording stock-based employee compensation. The stock added $1.05, or 1.3%, to $80.33.

Monday night,

Check Point Software

(CHKP) - Get Report

cut its full-year guidance and said it now anticipates revenue of $133 million to $134 million in the first quarter. That falls short of previous estimates of $145 million to $155 million and a poll of Thomson First Call analysts that pegged the company to hit $155 million in sales.

Among analyst actions, Check Point was downgraded to sector perform at CIBC following its warning. On the other hand,

CheckFree

(CKFR)

was upgraded at Suntrust Robinson.

Check Point finished down $1.07, or 5.4%, to $18.76. CheckFree climbed $4.16, or 8.3%, to $54.14.

Other corporate newsmakers included

ConAgra Foods

(CAG) - Get Report

. The company said it received $440 million from the sale of its Cook's Ham business and several seafood brands. Shares of ConAgra lost 4 cents, or 0.2%, to $21.61.

Biogen Idec

(BIIB) - Get Report

was down almost 1% despite newly published data that showed its drug Avonex slowed the onset of developing multiple sclerosis for up to five years in patients who began treatment immediately following their first attack.

Symmetricom

(SYMM)

, a telecom-equipment maker, finished down 4.9% after cutting its March quarter sales guidance. The stock fell 41 cents to $7.96.

Lucent

(LU)

received two upgrades after France's

Alcatel

(ALA)

said it would acquire the company in a $13.4 billion deal. Both Jefferies and Deutsche Securities upped their ratings to hold from sell. Lucent was off 4 cents, or 1.3%, to close at $3.04.

Deutsche Securities downgraded

Powerwave Technologies

(PWAV)

to hold from buy after the company cut its first-quarter revenue target. The wireless company reduced its forecast to $195 million from $245 million, citing weak demand. The Thomson First Call consensus is for revenue of $246.7 million and earnings of 14 cents a share. Powerwave tumbled $2.88, or 21.7%, to $10.40.

Stocks were mostly lower overseas. In Europe, London's FTSE dropped 0.3% to 6005, and the German DAX lost 0.2% to 6014. In Asia, Japan's Nikkei fell 0.2% to 17,293, but Hong Kong's Hang Seng rose 0.2% to 16,100.