- The Washington Times - Wednesday, October 3, 2001

NEW YORK (AP) Wall Street rallied in the last hour yesterday, overcoming an initially lukewarm response to the Federal Reserve's ninth interest-rate cut of the year.
Analysts said the advance, which focused on blue chips and other well-known stocks, didn't reflect a change in investors' generally dim view of the economy and business climate. With prices still depressed despite last week's big rally, investors sought stocks that have suffered the most lately or those that seem relatively secure amid political and economic uncertainty.
The Fed's half-point rate cut, which was widely expected, provided little impetus for the late rally.
The Dow Jones Industrial Average closed up 113.76 at 8,950.59.
Broader indexes also were higher. The Standard & Poor's 500 Index rose 12.78 to 1,051.33, while the Nasdaq Composite Index was up 11.87 at 1,492.33.
The gains, which came mostly in the last hour of trading, added to a rebound that began last week after the market's huge post-attack sell-off.
Analysts said investors were willing to take a chance on recently hard-hit companies on the belief that they will benefit whenever an economic recovery begins. The Fed move might have factored into that decision.
The Dow was lifted by buying in Boeing, up $1.85 at $34.25, despite fears its airplane business will suffer as Americans curb their travel because of terrorism threats. Wal-Mart, another Dow stock, gained $2.24 to $52 although retail sales are expected to suffer in the coming months.
"Volatility right after a Fed announcement isn't surprising," said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. "But the market understands that lower interest rates and the lower cost of capital will aid corporations when there is an economic upturn. People also understand that this is a move that will help business in 2002, not this quarter or next quarter."
The Fed's half-point cut had been widely anticipated because of the severe impact of last month's terrorist attacks on the already weak economy. It was the second rate cut in just over two weeks.
In a statement accompanying yesterday's action, the Fed indicated the attacks had significantly heightened uncertainty and that there is a risk of economic weakness ahead. That pessimistic tone might have contributed to the market's quiet reaction to the rate cut, although the Fed was echoing what many economists have said since the attacks. Also, with the Fed funds rate now at 2.5 percent, there isn't much more to cut.
"From an economic standpoint, it's pretty bleak. But from the standpoint of cutting rates in the future, this is positive," Bill Barker, investment consultant with Dain Rauscher, said of the Fed's statement. "They're telling you that they're going to keep lowering rates for as long as possible."
Financial stocks, usually beneficiaries from rate cuts, rose on the Fed announcement. Citigroup gained 50 cents to $42.25, while JP Morgan Chase & Co. rose 99 cents to $34.99.
Pharmaceutical stocks were mixed. Johnson & Johnson was down 43 cents at $54.99 on profit-taking from last week's big rally. But Merck was up 12 cents to $68.44.
Tech stocks were less successful.
A third-quarter earnings warning from Compaq sent its stock down 17 cents to $8.16, in selling that spread to other computer-related businesses. Texas Instruments dropped $1.85 to $23.14, while Apple Computer lost 49 cents to $15.05.

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