- The Washington Times - Tuesday, January 3, 2006

NEW YORK (AP) — Wall Street had a bullish start to the new year yesterday, with the Dow Jones Industrial Average surging nearly 130 points after the Federal Reserve signaled a willingness to stop its campaign of interest rate increases in the near future.

In minutes from the Federal Reserve’s Dec. 13 meeting, policy makers disagreed on exactly when to stop the policy of raising rates in quarter-percentage-point increments, but the Open Market Committee members did agree that an end was coming soon. The nation’s benchmark rate stands at 4.25 percent, the result of quarter percentage point rises over the past 13 meetings dating back to June 2004.

Investors ended 2005 with the fear that the Fed would go too far in raising rates, choking off economic growth in its effort to stem inflation. That concern had kept stocks volatile for much of the year and stymied Wall Street’s typical year-end rally. But the news of a possible policy shift was greeted with enthusiastic buying yesterday.

“Given the rise we saw, it shows you the importance of interest rates and what the Fed thinks,” said Jay Suskind, head trader at Ryan Beck & Co. “This gives us hope that the Fed will be sensitive to the economy and we can get back to that nice ‘Goldilocks’ economy where growth is just right.”

The Dow rose 129.91, or 1.21 percent, to 10,847.41.

Broader stock indicators also advanced sharply. The Standard & Poor’s 500 Index added 20.51, or 1.64 percent, to 1,268.80, and the Nasdaq Composite Index gained 38.42, or 1.74 percent, to 2,243.74.

Bonds moved higher, with the yield on the 10-year Treasury note falling to 4.37 percent from 4.40 percent late Friday. The dollar was mixed against other major currencies, while gold prices rose sharply.

The Fed minutes helped stocks overcome a number of hurdles in early trading, including a sharp jump in energy prices prompted by wintry weather in the Northeast. A barrel of light crude settled at $63.14, up $2.06, on the New York Mercantile Exchange.

Wall Street remained concerned that the economy was already slowing after a pair of economic reports pointed to slowdowns in manufacturing and the red-hot housing market. The Institute for Supply Management’s manufacturing index fell to 54.2 in December, less than the 57.5 reading expected by economists and off from 58.1 in November. In addition, the Commerce Department said construction spending rose 0.2 percent in November, far less than 0.7 percent gain expected.

Stocks also were weighed down in early trading because of negative news from a pair of Dow industrials. Wal-Mart Stores Inc. lost 57 cents to $46.23 as the retailer said its holiday sales will only approach the low end of its previous forecasts despite deep discounts used to lure buyers into the stores.

Fellow Dow component General Motors Corp. suffered after Banc of America Securities lowered its price target for the automaker to $13 per share from $16 per share, citing the likelihood of lower-than-expected savings on health care costs. Shares of the struggling automaker dropped 52 cents to $18.90.

The negative economic data and Dow pressures made the sharp rise in late trading even more surprising, said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati, who questioned whether the market’s thirst for gains, unfulfilled in December, fueled some over-exuberance.

“This is definitely a nice bounce here today, but there are a lot of stocks that have no reason to rally that have rallied,” Mr. Johnson said. “I hope it sticks, but I’m going watch cautiously here over the next couple of days.”

In other action, Poultry producer Pilgrim’s Pride Corp. fell to a new 52-week low after the company slashed its first-quarter profit forecasts in response to lower prices in the United States and disappointing sales in Mexico. Pilgrim’s Pride tumbled $7.80, or 24 percent, to $25.36.

Walgreen Co. rose $1.13 to $45.39 as the drugstore chain said higher generic drug sales helped push profits up 5 percent in the first quarter. The company beat Wall Street profit forecasts by a penny per share.

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