Strong Finish Saves Robust Rally

Equities push higher as investors brace for Tuesday's Fed meeting.
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Updated from 4:15 p.m. EDT

Stocks reclaimed a piece of last week's lost ground Monday, one day before interest-rate wary investors focus on a highly anticipated message from the

Federal Reserve

.

The

Nasdaq Composite

closed up 18.57 points, or 1%, at 1938.72, after being as high as 1955. The

Dow Jones Industrial Average

added 88.43 points, or 0.86%, to 10,314.00, and the

S&P 500

was up 10.25 points, or 0.93%, to 1117.55. The 10-year Treasury note was trading up 1/32 to yield 4.5%, while the dollar rose against the euro and fell against the yen.

Overall, volume was light. Nearly 1.6 billion shares traded on the

New York Stock Exchange

, where advancers outpaced decliners by about 3 to 2. On the Nasdaq, almost 1.9 billion shares changed hands, and advancers beat decliners by about 5 to 4.

The Nasdaq clambered back above its technically significant 200-day moving average of about 1934, despite a 0.6% drop in the Philadelphia Semiconductor Index. The Nasdaq got a boost from high-volume gains posted by

Cisco Systems

(CSCO) - Get Report

, up 1.5%,

Intel

(INTC) - Get Report

and

Microsoft

(MSFT) - Get Report

, both up just over 1%.

Barry Berman, managing director of equity trading with Robert W. Baird, said that most investors were waiting for Tuesday's word from the

Federal Open Market Committee

. "Last week we really dealt with the fears of a rate increase, and so today you've got a little bargain-hunting based on the fact that the market got pretty hard last week and they're probably not going to raise rates tomorrow," said Barry Berman. "You got a little buying going on today because of the low prices out there."

"I think this bounce might reflect the fact that maybe some investors feel the bearish sentiment has gone a little too far," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "The market has been held hostage by the bond market and fears of rising interest rates lately, and a lot of bearish sentiment is already priced into the market right now. So, while we expect interest rates will continue to move higher over the next few quarters, it could be that the bond market is due for a rest here at current levels.

"On balance, it looks like the market is likely to go down and test the March lows," Sheldon added. "If we can successfully test those lows, which I think there's a good chance of, then the markets will be able to hopefully mount some sort of rally later this month or in early June."

The March lows, which were the lowest levels seen for stock prices so far in 2004, are considered major support levels in a trading range that is more than a month old. For the Dow, that low is about 10,048, while the Nasdaq's is 1902 and the S&P's is 1108.

The government said construction spending surged 1.5% in March, beating Wall Street's consensus estimate of 0.5% growth. February's figure was revised up to a 0.4% jump after previously reported as a 0.1% decline. Separately, the Institute for Supply Management said the April results of its manufacturing index were slightly weaker than expected but still reflected strong economic activity. The index settled at 62.4, down from 62.5 in March. Economists expected a reading of 62.7, but anything over 50 represents expansion in the nation's industrial sector. Also, April's automobile and truck sales are due out some time Monday.

The ISM's price index hit 88%, 2 points higher than in March. It was the 26th consecutive month the index has increased.

"That component was a little disappointing," said Keith Keenan, vice president for institutional trading at Wall Street Access, about the indicator's price index. "I think people were expecting to see interest rates jump up a little bit on that part of the economic data, but the bond market shrugged it off pretty well."

"I just think the market is in a bit of a holding pattern before the

Fed

," he added.

The Federal Open Market Committee is scheduled to meet Tuesday morning at 9 a.m. EDT, with any changes to monetary policy announced at 2:10 p.m. EDT. With investors looking for signals about inflation and rising interest rates, Keenan said the Fed will most likely prepare Wall Street for a rate-hike after the June meeting.

"In the past they've basically said there's a greater risk of deflation than inflation," he said. "I think they're going to neutralize that and say there's now a greater risk of inflation. I think there's a little too much anxiety about the fact that interest rates are going up. It's a foregone conclusion and the market has been anticipating that for quite some time. I don't think inflation is also as great a concern as people are making it out to be."

In corporate news, Web commerce giant

InterActiveCorp

(IACI)

earned $38.3 million, or 5 cents a share, in the latest quarter, compared with a year-ago loss of $110.1 million, or 23 cents a share. Pro forma to exclude numerous expenses, the company earned 18 cents a share, 2 cents better than expectations. Its shares closed down $1.19, or 3.7%, to $31.06.

Shares of

Boeing

(BA) - Get Report

jumped 2.1% after the company announced that it increased its quarterly dividend from 17 cents to 20 cents a share and will resume its buyback program. The company said 44 million shares were still authorized to be repurchased under the program that was halted after the terrorist attacks of Sept. 11, 2001. Its shares added 89 cents at $43.58.

Also,

Ford

(F) - Get Report

lost 9 cents, or 0.6%, at $15.27 after the automaker reported that total U.S. sales in April dropped 4%.

Daimler Chrysler

(DCX)

gained 1.6% after saying sales rose 1%, while

General Motors

(GM) - Get Report

said Saturday it had to postpone its April sales release until Tuesday because of a computer failure that prevented its dealers from reporting their results. Its stock ended up 87 cents, or 1.8%, to $48.29.

Overseas, Germany's DAX closed up 0.6% at 4008 and Hong Kong's Hang Seng finished up 0.1% at 11,951. The markets in London and Japan were closed Monday.

Before Tuesday's opening bell, the tail end of first-quarter earnings season continues with results due from

Clear Channel

(CCU) - Get Report

, expected to report earnings of 14 cents a share, up from last year's 12 cents a share;

Health Net

(HNT)

, expected to report earnings of 53 cents a share, down from last year's 57 cents a share;

Northrop Grumman

(NOC) - Get Report

, expected to report earnings of $1.21 a share, up from 91 cents a share;

Safeway

(SWY)

, expected to report earnings of 22 cents a share, down from last year's 44 cents a share;

Tenet Healthcare

(THC) - Get Report

, expected to report earnings of 3 cents a share, down from last year's 34 cents a share; and

Tyco

(TYC)

, expected to report earnings of 36 cents a share, up from last year's 32 cents a share.

At 10 a.m. EDT, economists expect the government to say factory orders jumped 2.4% in March, up from the 0.3% rise logged for February.

Economics will be in focus all week after the FOMC meeting, with April's employment report due out Friday. Economists expect nonfarm payrolls to add 175,000 new jobs, down from the 308,000 recorded in March. The unemployment rate is expected to stay put at 5.7%.