Low interest rates drive stocks up
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NEW YORK — U.S. stocks rose today on expectations that the lowest interest rates in 45 years will lead to bigger increases in profit later this year. Computer-related shares including Microsoft Corp. and Intel Corp. led the advance.
Rising earnings and "low interest rates do wonders for equity valuations and stock prices," said Benjamin Pace, who helps oversee $22 billion at Deustche Bank Private Wealth Management in New York. He's been buying Anadarko Petroleum Corp. and St. Jude Medical Inc.
Circuit City Stores Inc., the No. 2 U.S. electronics chain, rallied to a seven-month high after Mexican billionaire Carlos Slim made a $1.66 billion offer to buy the company.
The Dow Jones industrial average closed up 67.51, or 0.8 percent, at 9,079.04, having fallen 98 points yesterday.
The broader market also finished higher. The Nasdaq composite index advanced 31.35, or 2 percent, to 1,634.01. The Standard & Poor's 500 index rose 10.49, or 1.1 percent, to 985.81.
Indexes fell yesterday as some investors were disappointed that the central bank lowered rates by less than expected. Economists had been split before the policy meeting between a quarter- and half-point reduction. The Fed's eventual quarter-point cut leaves its benchmark interest rate at 1 percent, the lowest since 1958.
The reduction will likely further decrease yields on money-market mutual funds, making returns less attractive. The average money-fund yield was 0.64 percent, according to the Money Fund Report, an industry newsletter. There is about $2.2 trillion in money market funds, said Investment Company Institute, a Washington-based trade association.
Money in bank deposits and money-market funds "at some point is going to have to move to something with a better return," said William Braman, chief investment officer at John Hancock Funds Inc., which manages about $28 billion.
Five stocks advanced for every three that declined on the New York Stock Exchange, while eight rose for every five that fell on the Nasdaq Stock Market. Some 1 billion shares traded on the Big Board, an 8.8 percent decrease from the same time a week ago.
Microsoft, the world's biggest software maker, added 46 cents to $25.72. A U.S. appeals ruled that Microsoft doesn't have to put rival Sun Microsystems Inc.'s Java programming language into its Windows computer operating system. The decision reserves a lower court order. Sun Microsystems fell 12 cents to $4.77.
Intel, the No. 1 maker of semiconductors, rose 66 cents to $20.70. Cisco Systems Inc., the largest maker of equipment used to link computers, advanced 30 cents to $17.17.
International Business Machines Corp., the biggest computer-services seller, climbed $1.24 to $83.73. The company won a 10-year, $380 million contract to run computer networks and build a backup system for the operator of three New York City hospitals.
Computer-related shares made up more than a third of the S&P 500's advance.
"If the economy improves in the second half, we'll see those sensitive areas, like technology, start to show better earnings growth," said Kurt Wolfgruber, chief investment officer at OppenheimerFunds Inc. which oversees $125 billion in New York.
Nextel Communications Inc., the only nationwide seller of a combined walkie-talkie and mobile telephone service, jumped $1.10 to $18.14. The company said it will meet or exceed 2003 forecasts as it adds more customers and cuts spending.
The S&P 500 has climbed 23 percent since March 11, when it touched its 2003 low, on optimism corporate spending will pick up, lifting the economy and profits. The Dow average has gained 20 percent during that stretch and the Nasdaq is up 27 percent.
There are signs corporate executives may be more optimistic about the economy's prospects. Regulatory filings show Slim offered to buy the Circuit City shares he doesn't already own, while Lehman Brothers Holdings Inc. is interested in buying Neuberger Berman Inc. to reduce its dependence on bond trading, a person familiar with the situation said.
Circuit City, the owner of the CompUSA chain of computer stores, jumped 77 cents to $8.77, the highest since Dec. 4. The company rejected an $8-a-share offer from Slim, its second-largest investor. Chief Executive Alan McCollough said the board wasn't interested in discussing the proposal.
Neuberger Berman, an asset manager that oversees $56.3 billion, soared $3.36 to $40.96. Chief Executive Officer Jeffrey Lane declined to comment through Towers Group, a public relations firm, while a call to founder Roy Neuberger's suite at the Pierre Hotel in New York was answered by a person who refused to give his name. He said the family had no comment.
Lehman, the fourth-largest U.S. securities firm by capital, fell $1.78 to $67.70. Lehman spokeswoman Hannah Burns declined to comment.
General Electric Co., the world's biggest company by market value, agreed to sell a Japanese life insurance unit and a U.S. car and home insurance unit to American International Group Inc. for $2.15 billion. General Electric will get a $440 million dividend from the U.S. business prior to the sale.
General Electric added 24 cents to $29.50. American International, the world's biggest insurer, advanced 44 cents to $56.09.
Altria Group Inc. rose 98 cents to $44.95 after a California ruling gave the company's Philip Morris USA unit a chance to overturn a $26.5 million verdict awarded to a cancer-stricken smoker. Goldman, Sachs & Co. analyst Judy Hong said the verdict makes it unlikely the world's biggest cigarette maker will face "outsized punitive damages." She rates the stock "outperform."
Companies with asbestos-related liabilities rebounded after the U.S. Senate Judiciary Committee agreed to add $45 billion to a $108 billion asbestos-victims fund to rescue the proposed legislation. Reserves for asbestos claims have driven more than 60 companies into bankruptcy over the past 20 years.
