Posted at 12 p.m., Friday, May 4, 2001

Stocks rise amid hopes of rate cut

Associated Press

NEW YORK — Stocks moved higher today as more dismal economic news raised hopes that the Federal Reserve will aggressively cut interest rates and Congress will cut taxes.

The Labor Department reported that the nation's unemployment rate shot up to 4.5 percent in April, the highest level in 2 1/2 years. The figures also showed that businesses slashed their payrolls by the largest amount since the recession in 1991.At the White House, meanwhile, press secretary Ari Fleischer said President Bush "remains very concerned about the strength of the economy." He added that the Bush administration believes it's "entirely possible" that the government's recent 2 percent reading for the nation's first-quarter economic growth will be revised downward.

The Dow Jones industrial average fell as low as 10,673.61 before recovering. At the close of regular trading, the Dow was up 154.59 at 10,951.24, according to preliminary calculations.

That was the strongest close since the Dow reached 10,957.42 on Feb. 6.

Wall Street's broader indicators also were down in early trading but reversed course. The Nasdaq composite index was up 45.46 at 2,191.66 — its fifth positive close in six sessions — while the Standard & Poor's 500 index rose 18.03 to 1,266.61.

Stocks rose on expectations that the economic news will prompt Fed policy makers to cut interest rates a half a percentage point when they meet May 15. Earlier, the odds had been on a quarter-point cut.

Deepening economic worries also could put pressure on Congress to pass Bush's tax-cut proposal. Fleischer said the president believes "the best way to protect the economy and get it moving again is for Congress to take prompt action to pass the budget and put his tax cut into place, especially on a retroactive basis."

Ed Yardeni, chief investment strategist for Deutsche Banc Alex. Brown in New York, said it was extremely rare for the White House to predict a revision in a key economic measure such as the 2 percent gross domestic product reading. He suggested the Bush administration "is positioning here for a quick passage of the tax cut" favored by the president.

He said the employment figures "clearly indicate economic weakness is spreading to the consumer sector" and said that increased the likelihood of a half percentage point, or 50 basis point, interest rate cut by the Fed.

Scott Marcouiller, a vice president and market analyst at A.G. Edwards & Sons of St. Louis, concurred.

"The odds of a 50 basis point cut increased dramatically in the last 48 hours," he said.

The size of the increase in the unemployment rate and the cut in jobs surprised many analysts. They were predicting the unemployment rate would rise to 4.4 percent and that businesses would add jobs during the month.

The figures worry investors because weakness in employment tends to depress consumer spending. That, in turn, could prolong the economic weakness that has been evident in the economy since late last year.

Among those taking big hits were Wind River Systems Inc., with its shares dropping 66 cents to $25.52. The company late yesterday cut its first-quarter earnings projections to a range of 4 cents to 6 cents a share. It cited a significant slowdown in customer spending and said it will cut its work force by up to 15 percent.

Advancing issues outnumbered decliners about 3 to 1 on the New York Stock Exchange, where volume came to 1.075 billion shares compared with 1.105 billion at the same time a day earlier.

The Russell 2000 index, which measures the performance of smaller companies stocks, was down through the morning but turned around in the afternoon, registering a 7.24 gain to 492.89.

Overseas markets were mixed. In late afternoon trading in Europe, Germany's DAX index rose 0.81 percent to close at 6,138.28, but France's CAC-40 was down 0.03 percent to 5,455.55. Britain's FT-SE 100 was up 1.81 percent at 5870.30.

Japan's markets were closed.