Dow muscles higher, drags up Nasdaq

Dow muscles higher, lifts Nasdaq

Value stocks favored as rate hike campaign seen over

NEW YORK (CBS.MW) — Blue-chip stocks racked up solid gains Monday amid a blossoming belief that interest rates are staying put but that economic moderation won’t bite into corporate profits.

The Dow Jones Industrial Average ($DJ) shot up 148 points, or 1.3 percent, to 11,176.14.

Retail issues were stalwarts within the broader market as the S&P Retail Index ($RLX) rose 3.0 percent.

Among financial shares, J.P. Morgan & Co. Inc. (JPM) was an afternoon leader for the Dow. It rallied 4 1/16 or nearly 3 percent to 147 5/16, amid expectations for strong second-half profits.

The technology-heavy Nasdaq Composite ($COMPQ) rose 60 points to 3,849.49.

Semiconductor shares notched the heftiest advance, inspired by Intel (INTC), Applied Materials (AMAT) and Micron Technology (MU).

Still, analysts look for range-bound trading overall this week, particularly with the Federal Reserve set to meet on interest rates next Tuesday. The majority’s voice calls for no change to the Fed’s target borrowing rate, already at a near-decade-high 6.5 percent, but market participants aren’t willing to chance a surprise.

The Dow Jones Industrial Average’s performance Monday reflected the “sober-sided nature of the market,” said Larry Wachtel, senior market strategist at Prudential Securities. Investors have returned to those issues “with more reasonable valuations” than high-tech issues, many of which trade at values hundreds of times more than their earnings.

Dell Computer Corp. (DELL) slipped 1 to 36 11/16 after analysts lowered profit forecasts in the second half for the world’s No. 2 personal computer producer.

The Standard & Poor’s 500 Index ($SPX) rose 1.3 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks rose 0.8 percent.

Merger mania

It was Merger Monday on Wall Street, although analysts said no one announcement was a standout for the broader market.

Among Monday’s movers, News Corp. said it has agreed to buy media company Chris-Craft. Chris-Craft (CCN: news, msgs) powered up 14, or 23 percent, at 76 in pre-market Instinet action; it closed near 79. News Corp. (NWS: news, msgs), which added 3/8 to 50 1/8, and its Fox Television unit announced an agreement to buy Chris Craft, BHC Inc. (BHC: news, msgs) and United Television (UTVI: news, msgs) in a deal valued at $5.35 billion in cash and stock. The cash portion totals $2.13 billion. Chris-Craft owns an 80 percent stake in BHC, while BHC owns 57 percent of United Television. See full story.

Elsewhere, Chiron (CHIR) agreed to buy rival biotechnology company PathoGenesis (PGNS) for about $700 million. Chiron will offer $38.50 a share in cash for PathoGenesis, which soared 16 percent on the news. Chiron lost 1 15/16 or 4 percent to 46 11/16.

Broadcom (BRCM: news, msgs) said it would issue 5.5 million shares of its stock to acquire NewPort, a privately held maker of technology in the red-hot optical networking segment. Broadcom’s stock gained 15 11/16 or 7 percent to 240 3/4 on Monday. .

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Peter Cardillo, chief strategist with Westfalia Investments, said he looks for the Dow to test the 11,200-to-11,300 area before meeting any major resistance. He looks for the technology-studded Nasdaq to consolidate through the Labor Day holiday but break out to the upside once its range is penetrated.

Analysts said the market could likely claim at least a modest boost from the Democratic National Convention this week, with candidate Al Gore expected to boost his deficit-fighting platform. Generally, market observers believe debt reduction, and its related impact on lowering interest rates, is preferred in the financial arena over a large tax cut such as the one proposed by Gore rival George W. Bush. Read more convention coverage on our WashingtonWatch page.

The market is entering an information vacuum with the second-quarter earnings season just about wrapped up and less emphasis on the economic numbers now that the market is convinced the Fed won’t raise rates at the Aug. 22 FOMC meeting.

Consumer spending, as indicated by Friday’s retail-sales data, remains healthy, and while the report did little to sway a growing consensus from its belief the Fed will remain on hold this month, talk was rekindled for another modest rate increase yet to come this year.

Neither Wachtel nor Cardillo, though, look for the central bank to pull the trigger on rates again in 2000, and that bodes well for a broad-based rally into the end of the year.

Already, the Fed has tried to achieve a gentle touchdown for the economy by lifting bank borrowing rates by 1.75 basis points since June 1999.

Wachtel conceded that the slower-growth debate does stir up the notion of weaker profits, but he added that recent earnings announcements have revealed little dramatic downturn in profitability.

A total of 25 S&P 500 companies are set to release their quarterly results this week, First Call said. Reports from Hewlett-Packard (HWP) and Home Depot (HD) will conclude the current quarter’s earnings season for Dow-component companies.

Network Appliance, Lycos, Analog Devices, BEA Systems, Target, J.C. Penney, Kohl’s, Deere, Estee Lauder, Tiffany, News Corp., Staples and Agilent Technologies will also report this week.

Awaiting CPI

The highlights of the week’s data docket include July industrial production and capacity utilization, the July consumer price index, July housing starts, building permits and the trade figures for June.

The consumer price index will be watched for further evidence that inflation has remained dormant. A CBS.MarketWatch.com forecast looks for a 0.2 percent rise both overall and when stripping out erratic food and energy prices.

With focus on the data later in the week, financial markets paid little mind to a second-tier economic report released early Monday. The Commerce Department reported early Monday that business inventories rose 0.9 percent, topping a CBS.MarketWatch.com
forecast for a 0.5 percent rise. Sales grew by 0.9 percent as well. See related story. Read Economic Preview, economic calendar and forecasts and historical economic data. 

Elsewhere, the bond market rallied from early-day losses to finish a touch on the plus side. A 10-year Treasury note rose 1/32, with its yield ($TNX: news, msgs) unchanged at 5.79 percent. A 30-year bond was up 5/32 to yield ($TYX: news, msgs) 5.70 percent.

In recent trading, dollar/yen (C_JPY) added 0.8 percent to 109.50, while euro/dollar (C_EUR) was flat at 90.35 cents. See latest currency rates.