Stocks Survive Another Fed Hike

The Fed's latest move fails to ruffle feathers as the Dow posts its third consecutive gain.
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Updated from 4:04 p.m. EST

Investors on Wednesday shrugged off another quarter-point increase in interest rates by the

Federal Reserve

and celebrated

Google's

(GOOG) - Get Report

big earnings, as the

Dow

posted a third straight winning session for the first time this year.

The Dow Jones Industrial Average closed 44.85 points, or 0.4%, higher at 10,596.79; the

S&P 500

added 3.78 points, or 0.3%, to 1193.19; while the

Nasdaq

finished up 6.36 points, or 0.3%, to 2075.06. All the major indices closed off session highs touched shortly after the Fed's announcement. The 10-year Treasury note was unchanged to yield 4.14%, a slight improvement from before the Fed's move, while the dollar erased losses and traded higher against the yen and euro.

Volume on the

New York Stock Exchange

was 1.59 billion shares, lighter than usual, with advancers beating decliners by a ratio of 5-to-3. Volume on the Nasdaq was 1.95 billion shares, with advancers outpacing decliners 18-to-13.

"The Fed's rate hike came as no surprise," said Peter Cardillo, chief market analyst with S.W. Bach & Co. "It was a surprise, however, that the statement was identical to the previous, regarding a measured pace. The fact that they didn't drop it, or elaborate on productivity or energy prices, is a sign that they're satisfied with inflation, which they stressed was well-contained. It's just a real surprise they didn't alter the language a bit."

The Fed increase, the sixth since last June, puts the federal funds rate at 2.5%, still very low by historical standards.

"The committee believes that, even after this action, the stance on monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity," the central bank's FOMC said in a statement. "Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions continue to improve gradually. Inflation and longer-term inflation expectations remain well-contained."

Oil fell even after the Energy Department data showed a decline in crude inventories. The March crude contract closed down 43 cents at $46.69 a barrel. U.S. crude stocks fell 300,000 barrels for the week ended Jan. 28, while distillate stocks eased by 2.9 million barrels.

Google traded at an all-time high after saying fourth-quarter earnings rose by a factor of 8 on a 30% jump in net revenue to $654 million. Backing out stock-based compensation, Google earned about 87 cents a share in the December period, beating estimates by a dime. The stock added $14.06, or 7.3%, to $205.96.

With the Fed decision now history, investors must still wait for President Bush's State of the Union address tonight. According to press reports, the president will offer more details on his plan for Social Security reform, an initiative receiving special attention on Wall Street, which could see a windfall from privatization. Bush is also expected to air proposals on energy policy and job training, as well as Middle East politics.

"It is a trading market today, based on the Fed and president's speech tonight," said Barry Berman, managing director of equity trading with Robert W. Baird. "I'd be surprised if you had a big swing one way or the other unless you have some dramatic news. Until people know what the Fed will do and how aggressive the president will be tonight, I don't think anything will happen until the dust has settled tomorrow."

Boeing's

(BA) - Get Report

fourth-quarter earnings fell 85% from a year ago to $186 million, or 23 cents a share, reflecting charges on the cancellation of its 717 jet program. Revenue rose about 1% to $13.31 billion.

The quarter's items netted out to a negative 32 cents, implying earnings of 55 cents a share. Analysts were looking for earnings of 4 cents a share on sales of $12.78 billion. Shares rose $1.19, or 2.3%, to $52.23.

Countrywide Financial

(CFC)

reported fourth-quarter earnings of $343 million, or 56 cents a share, a 26% decline from $564 million, or 94 cents a share, a year ago. The company missed the Thomson First Call consensus of 81 cents a share. Shares lost $2.12, or 5.6%, to $35.91.

A handful of technology stocks were moving on after-hours earnings news, including

Adobe

(ADBE) - Get Report

, which boosted its first-quarter earnings target to as much as 51 cents a share. Analysts were looking for earnings of 47 cents a share. Adobe gained $4.39, or 7.6%, to $62.29.

Nvidia

(NVDA) - Get Report

raised its fourth-quarter revenue estimate to $560 million to $570 million, up from a previous forecast of $516 million. It cited strong sales of its GeForce 6 chips. Shares added $1.30, or 5.6%, to $24.65.

Elsewhere,

CVS

(CVS) - Get Report

said it had fourth-quarter earnings of $295.6 million, or 70 cents a share, compared with $263.4 million, or 64 cents a share, from a year ago. The company saw revenue increase 20% year over year to $8.92 billion. The Thomson First Call consensus called for earnings of 55 cents a share on revenue of $9.1 billion. Shares rose $1.73, or 3.7%, to $48.26.

Yum! Brands

(YUM) - Get Report

said fourth-quarter earnings rose 10% from a year ago to $235 million, or 77 cents a share, on a 5% rise in sales to $2.79 billion. Excluding items, the company earned 73 cents a share, a penny better than estimates. Shares of Yum! were off 22 cents, or 0.5%, to $45.62.

Northrop Grumman

(NOC) - Get Report

posted fourth-quarter earnings of $294 million, or 80 cents a share, compared with $224 million, or 61 cents a share, from a year ago. Revenue rose to $7.85 billion, a 9.7% increase year over year. Excluding discontinued operations, earnings rose to 81 cents, meeting the average Thomson First Call estimate. Northrop gained 34 cents, or 0.6%, to $52.34.

In broker action, UBS upgraded

AT&T

(T) - Get Report

to neutral while CIBC upgraded the company to sector performer, based on the acquisition deal with

SBC Communications

(SBC)

. AT&T added 46 cents, or 2.4%, to $19.60.

Smith Barney downgraded

TiVo

(TIVO) - Get Report

after the resignation of its president, Marty Yudkovitz, the second executive to leave the company in the last month. TiVo fell 26 cents, or 6.8%, to $3.58.

On Thursday,

Gillette

(G) - Get Report

will post its fourth-quarter earnings. The company just agreed to be acquired by

Procter & Gamble

(PG) - Get Report

. The Thomson First Call consensus calls for earnings of 42 cents a share. Gillette closed Wednesday up 40 cents, or 0.8%, to $50.70.

Overseas markets finished mostly higher Wednesday, with London's FTSE 100 up 0.2% to 4916 and Germany's Xetra DAX adding 0.4% to 4296. In Asia, Japan's Nikkei rose 0.2% overnight to 11,407, while Hong Kong's Hang Seng dipped 0.2% to 13,556.