- The Washington Times - Tuesday, September 21, 2004

NEW YORK (AP) — Stocks gained yesterday as investors welcomed strong earnings from financial services companies, upbeat economic data and some reassuring news from the Federal Reserve.

The Fed’s decision to raise short-term interest rates by another quarter-percentage point to 1.75 percent did not come as a surprise to the market. The widely anticipated decision and the statement issued alongside it were viewed as a signal that the central bank sees continued improvements in the economic outlook and inflation.

“I think it’s basically a pretty positive statement,” said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. “I doubt that this hike, which was widely expected, will have any meaningful impact on the economy, but it will have a positive psychological effect on the market because it is reassuring the world that the economy is doing better.”

The Dow Jones Industrial Average closed up 40.04, or 0.4 percent, at 10,244.93.

The broader gauges were also higher. The Standard & Poor’s 500 index added 7.10, or 0.6 percent, to 1,129.30, its highest close since July 1.

The Nasdaq Composite Index gained 13.11, or 0.7 percent, to 1,921.18, its best finish in two months.

In economic news, the Commerce Department reported robust construction of homes last month. The 2-million-unit pace of housing construction recorded for August was the highest level of activity in five months, and far outpaced the decline economists were expecting. July’s housing figures were revised upward.

The upbeat economic data reinforced Fed Chairman Alan Greenspan’s view that the economy is on firmer footing since striking a “soft patch” in late spring. In a statement issued yesterday, the Fed said, “Output growth appears to have regained some traction, and labor market conditions have improved modestly.”

Persistently high energy prices still continue to weigh heavily on investors’ minds. Global supply concerns were further exacerbated by Russian oil giant Yukos’ announcement that it would halt shipments to China due to financial troubles related to its ongoing fight with Moscow over back taxes. Light sweet crude for October delivery settled up 75 cents at $47.10.

“The markets seem to be accepting prices over $40 a barrel; if they were to move back to $50 and higher we could see some setbacks, but oil prices at these higher levels have not had a major impact in pushing up inflation so far,” said Lynn Reaser, chief economist and senior market strategist, Banc of America Capital Management.

Lehman Brothers Holdings Inc. rose 4.9 percent, or $3.73, to $79.75, after the financial services firm beat expectations with a 5.2 percent rise in third-quarter profits.

Goldman Sachs Group Inc. added $3.22 to $94.90 after posting a 30 percent jump in profits for the latest quarter, helped by strong growth across its segments. Earnings per share of $1.74 surpassed the $1.43 per share forecast by analysts surveyed by Thomson First Call.

Among decliners, General Mills Inc. fell 98 cents to $45.35 after the cereal maker reported a 19 percent dip in earnings due to higher prices for ingredients and restructuring costs.

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