- The Washington Times - Wednesday, June 30, 2004

NEW YORK (AP) — Wall Street ended the first half of 2004 with a moderate advance yesterday as the Federal Reserve’s widely expected interest-rate increase allowed investors to put weeks of uncertainty behind them.

The markets’ reaction to the Fed’s move — which raises the benchmark lending rate by 0.25 percentage point — was somewhat muted, because the increase was what investors had anticipated. The increase, bringing rates off their 45-year low of 1 percent to 1.25 percent, was the first in four years.

Although the market worried about the size of the increase and the Fed’s accompanying policy statement, there were few surprises. The Fed promised to continue a “measured pace” of rate increases to combat inflation. And although it acknowledged there is a somewhat higher risk of inflation, it added that some of the inflation factors were transitory and that the risks were balanced.

“This has certainly been a very well-telegraphed change in direction,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank. “It was an expected increase and a very balanced statement, both designed to keep the market confident in the Fed’s ability to manage the economy.”

The Dow Jones Industrial Average gained 22.05, or 0.2 percent, to 10,435.48.

Broader stock indicators were moderately higher. The Standard & Poor’s 500 Index was up 4.64, or 0.4 percent, at 1,140.84, and the Nasdaq Composite Index gained 12.86, or 0.6 percent, to 2,047.79.

Yesterday marked the halfway point of 2004, as well as the end of the second quarter. So far this year, the Dow is off 0.2 percent, but the S&P; 500 has gained 2.6 percent and the Nasdaq has climbed 2.2 percent. All three major indexes were up for the quarter, as well as the month of June.

Most investors and analysts think the Fed’s rate boost is the first of many, with another 0.25 percentage-point increase possibly coming as early as the next Fed meeting in August. But with rates historically low to begin with, the cost of borrowing still will be very good for corporate America and won’t unduly affect earnings.

Before the Fed announcement, stocks were sluggish as investors hedged their bets against a Fed surprise that never materialized. Investors now are looking ahead to the key Labor Department report on employment tomorrow, as well as July’s second-quarter earnings reports.

In a preview of what the second-quarter results might look like, a number of companies reported better-than-expected earnings late Tuesday and yesterday before the session. Cereal and packaged-foods producer General Mills Inc. gained $1.41 to $47.53 after posting earnings that beat Wall Street expectations by 2 cents per share.

Agriculture and biotech firm Monsanto Co. posted a 45 percent gain in quarterly earnings, which were 3 cents higher than analysts’ estimates. Monsanto rose $1.30 to $38.50.

Research in Motion Ltd., makers of the popular Blackberry e-mail pager, surged $9.07, or 15 percent, to $68.45 after it beat estimates.

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