Stocks Surge on Fed Manufacturing Survey and Recovery Hopes

June 16, 2003

NEW YORK (Reuters) - U.S. stocks ended sharply higher on Monday, pushing the blue-chip Dow to its highest level in almost a year, after a report on New York state's manufacturing sector proved surprisingly strong and sparked hopes that the U.S. economy will recover later this year.

Stocks have rallied for more than three months, as investors have disregarded lackluster economic data and bet on a rebound in the year's second half. Since hitting its low for the year on March 11, the broad Standard & Poor's 500 index has climbed 26 percent.

Expectations of an interest-rate cut by the Federal Reserve's policy board, which meets on June 24-25, also fueled investors' optimism. Low rates cut borrowing costs for companies, helping their bottom lines.

"We're at the point where economic data, no matter what comes out between now and next Tuesday, will be viewed through rose-colored glasses," said Andrew Baker, a senior trader at Wedbush Morgan in Los Angeles.

"Weaker data can be interpreted as a higher chance of a rate cut, which is good for the market and the economy, and better economic data will signify the economy is turning around," he said.

The Dow Jones industrial average finished up 201.84 points, or 2.21 percent, at 9,318.96, its highest close since July 5, 2002. All 30 Dow components ended higher.

The broader S&P 500 index rose 22.24 points, or 2.25 percent, to 1,010.85, its highest finish since June 19, 2002. The technology-laced Nasdaq Composite Index climbed 40.09 points, or 2.46 percent, to 1,666.58, based on the latest data, and marking its highest close since May 23, 2002.

Driving the market's upward momentum are money managers, who are afraid of underperforming the markets' benchmarks, and are snapping up shares to keep up with the rally.

"It seems like the inflows and optimistic sentiment in last month-and-a-half are carrying us higher," said Michael O'Hare, head of block trading at Lehman Brothers. "A lot of people have missed the rally and don't want to miss any more. There's money that's got to be put to work."

Earlier, the Federal Reserve Bank of New York said its Empire State Manufacturing Survey soared to its highest level in its 2-year history. The report, which measures factory activity in New York state, gave a glimmer of hope for the stagnant U.S. manufacturing sector.

Another report showed U.S. home builders' optimism jumped this month, as record low rates stoked expectations for demand. The National Association of Home Builders' housing market index, which measures builder sentiment about sales and buyer traffic, rose in June to its highest level since February.

Volume was active, with about 1.31 billion shares changing hands on the New York Stock Exchange, and roughly 1.89 billion shares traded on the Nasdaq. Advancers trounced decliners by a ratio of 24 to 9 on the Big Board, and by about 21 to 11 on the Nasdaq. All 30 components of the blue-chip Dow ended higher.

Pfizer Inc. topped the Big Board's most actively traded list after saying its cholesterol-fighting drug Lipitor significantly reduced strokes and heart attacks in diabetic patients. Pfizer shares soared $1.52, or 4.59 percent, to $34.60.

On the Nasdaq, shares of discount retailer Kmart HoldingCorp. jumped $4 or 21.63 percent to $22.50 and ranked among the Nasdaq's biggest percentage gainers, despite reporting an $862 million quarterly loss. Kmart, under pressure to succeed after emerging from bankruptcy in May, said its gross margin improved, but quarterly sales continued to drop.

Shares of Internet media company Yahoo Inc.rallied, after Britain's dominant telecoms operator BT Group (BT.L) said the two companies would launch a joint high-speed Internet service for the United Kingdom, to replace BT's long-time OpenWorld brand. Yahoo shares ended up 6.75 percent, or $1.94, at $30.66.

http://story.news.yahoo.com/news?tmpl=story&cid=568&ncid=749&e=1&u=/nm/20030616/bs_nm/markets_stocks_dc