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Posted at 11:24 a.m., Tuesday, September 26, 2006

Dow closes at second highest level

Associated Press

NEW YORK — Wall Street surged higher today, carrying the Dow Jones industrials to their second-best close ever, as positive economic data further buoyed a growing sense of optimism among investors. The Dow closed just 53 points away from its record high close.

Stocks, particularly the blue chips, moved higher after the Conference Board said its consumer confidence index for September rose more than expected, reaching 104.5 from a revised reading of 100.2 in August. Analysts forecast the index would rise to 103.

Also bolstering investor enthusiasm was a report from the Federal Reserve Bank of Richmond that showed the region's economy strengthened this month. The bank's manufacturing index came in at 9 versus 3 in August.

Jack Albin, chief investment officer with Harris Private Bank, said the market's advance reflects widespread investor enthusiasm and a realization that the Federal Reserve might have room to ease short-term interest rates. He pointed to low inflation and the recent nearly 20 percent pullback in oil prices.

"The Fed has a lot more elbow room to lower rates. The Fed could maybe even lower this year."

According to preliminary calculations, the Dow gained 93.58, or 0.81 percent, to 11,669.39. The Dow's advance put it within range of its high of 11,722.98 set in January 2000.

Broader stock indicators also jumped sharply. The Standard & Poor's 500 index rose to a five-and-a-half-year high, increasing 9.97, or 0.75 percent, to 1,336.34 and the Nasdaq composite index rose 12.27, or 0.55 percent, to 2,261.34.

Bonds fell after a sharp rally yesterday in what was perhaps some profit-taking. The yield on the benchmark 10-year Treasury note rose to 4.58 percent from 4.54 percent late yesterday. The dollar was mixed against other major currencies, while gold prices rose.

Light crude oil settled down 44 cents at $61.01 on the New York Mercantile Exchange. The slide in oil prices this month has given investors optimism that consumer spending will hold up even as the economy slows and help protect corporate profits.

Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc., doesn't expect the gains will last however.

"I don't think we're going to go up, up and away from here. I think you've got momentum and the magnetism of a new record high for the Dow."

"I would preach a little caution here." Goldman contends that the markets will discount for November's midterm elections by mid-to-late October and that some of the run-up this week could reflect a desire among institutional investors to burnish their third-quarter figures.

"This time of the year you also get some window dressing by institutions and also some short covering," he said. "The bears have not had a lot of a fun."

Bears wouldn't have been surprised by news from Lowe's, which rose 1 cent to $28.85, despite reducing its full-year profit forecast; it warned that a slowdown in the sector was hurting sales of its home-improvement products. Lennar rose 7 cents to $46.95 even after saying its third-quarter profit fell 39 percent amid sluggishness in the sector and the company, one of the country's biggest homebuilders, trimmed its fourth-quarter forecast.

In the technology arena, PMC-Sierra Inc., a maker of communications and storage chips, fell 55 cents or 8.4 percent, to $6 after cutting its third-quarter sales forecast to $114 million to $116 million from $122 million to $124 million.

Innovex Inc., a chip maker, fell 38 cents, or 13.7 percent, to $2.40, after warning its fourth-quarter sales could fall short of expectations.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.72 billion shares, compared with 1.75 billion traded yesterday.

The Russell 2000 index of smaller companies was up 2.52, or 0.35 percent, at 729.61.

Overseas, Japan's Nikkei stock average fell 0.49 percent. Britain's FTSE 100 closed up 1.30 percent, Germany's DAX index was up 1.00 percent, and France's CAC-40 was up 1.42 percent.