- The Washington Times - Monday, July 14, 2003

NEW YORK (AP) — Better-than-expected profits from Citigroup and Bank of America lifted Wall Street yesterday as investors grew more optimistic about a strong economic rebound. A late-day sell-off, however, limited the gains.

The Dow Jones industrials rose as much as 158 points before losing momentum in the final hour of trading. Analysts said it was not clear whether reports of a trading error at the Chicago Mercantile Exchange was behind the drop or if investors turned cautious after the advance.

“The rally began March 11 and we’re now entering the fifth month. On top of that we had a 160-point move — so it was up, up and away. There might have been an aspect of too much, too soon,” said Larry Wachtel, market analyst at Prudential Securities.

The Dow closed up 57.56, or 0.6 percent, at 9,177.15, having gained 0.5 percent last week.

The broader market also finished higher. The Nasdaq Composite Index gained 20.89, or 1.2 percent, to 1,754.82, after a weekly advance of 4.2 percent. The Standard & Poor’s 500 index rose 5.72, or 0.6 percent, to 1,003.86, having gained 1.3 percent.

Dow component Citigroup advanced 97 cents to $47.12 after the nation’s largest financial institution reported second-quarter earnings that beat estimates by 3 cents per share. Bank of America rose 58 cents to $83.46 after it posted quarterly profits that also topped expectations.

Intel, another Dow component, gained 68 cents to $24.02 after Merrill Lynch raised the technology company’s stock rating to “buy” from “neutral.” The company reports earnings today.

“Citigroup and Bank of America tend to be a pretty good litmus test for the financial services sector as a whole. If they feel good, that’s a good sign for the rest of economy,” said Doug Sandler, chief equity strategist at Wachovia Securities.

“We continue to believe the potential for upside [earnings] surprises outweigh the downside surprises,” he added. “Investors’ risk tolerance is going up, and they’re not penalizing equities as much as they’re used to.”

But shares lost some of their early gains after an apparent error in electronic trading in stock index futures. The Chicago Mercantile Exchange was forced to unwind certain trades, and rumors about the error also affected the market, analysts said.

While stocks have surged in recent months, investors have been watching the second-quarter-earnings season for evidence the economic recovery is firmly under way.

“We’re getting some indications that the rally was actually based on something fundamental” rather than investors’ expectations, said Ed Peters, chief investment officer at PanAgora Asset Management Inc. in Boston. “With all this news coming together, it’s mostly good.”

Two merger announcements yesterday also gave the market a boost.

Overture Services climbed $2.54 to $24.05 after Yahoo agreed to buy the Web-search advertising company in a deal worth $1.63 billion. Yahoo inched up 1 cent to $32.20.

OfficeMax surged $1.42 to $8.60 after Boise Cascade agreed to buy the office-supplies retailer for nearly $1.2 billion in cash and stock; the deal will double the size of its office-products-distribution business. Boise Cascade declined $1.56 to $21.87.

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