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Markets rocket up on hint of interest stability

Ignoring a surge in oil prices, the Dow leaps nearly 200 points on news that the Fed may be through raising rates for a while.

By ASSOCIATED PRESS
Published April 19, 2006

NEW YORK - Stocks soared Tuesday on news that Federal Reserve policymakers think their run of interest rate hikes is likely nearing an end, propelling the Dow Jones industrials up nearly 200 points. The report helped offset the effects of oil prices that passed $71 a barrel.

Wall Street was climbing in midafternoon when the Fed released minutes of the Federal Open Market Committee's March 27-28 meeting that showed most of the panel's members "thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy."

But the release of the minutes was just what an interest rate-weary market wanted to hear. The Fed has raised rates 15 times in a row since June 2004, putting the nation's benchmark rate at 4.75 percent.

"When it appears as though the governors of the Federal Reserve believe that the end of the rate increases is near, that's very good news for investors," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors in Albany, N.Y. "A lack of ambiguity from the Federal Reserve is always a little bit of a shocker."

The Dow Jones industrial average gained 194.99, or 1.76 percent, to 11,268.77.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 22.32, or 1.74 percent, to 1,307.65, and the Nasdaq composite index rose 44.98, or 1.95 percent, to 2,356.14.

Traders had gotten some comfort Tuesday from the Labor Department's report that core wholesale inflation, which excludes volatile energy and food prices, rose 0.1 percent last month. Overall inflation rose 0.5 percent, the fastest pace in three months, after a 1.4 percent drop in February. However, the core number indicated that the effects of higher oil are not making their way throughout the economy.

Any sign of rising inflation has sent stock prices falling, as fighting inflation has been the Fed's primary concern. However, while the economy has been expanding, inflation has been under control.

With some reassurance from the Fed, investors are likely to focus more on earnings, which are cascading in this week and next.

At the same time, the Fed minutes showed policymakers are not giving up their inflation watch.

"Members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance," the minutes stated.

The threat of inflation was evident Tuesday in the continued surge of energy prices. The rise, caused by increasing tension over Iran's nuclear energy program and worries about disruption to supplies from Nigeria, pushed crude to a record close of $71.35 on the New York Mercantile Exchange.

But stock investors, calmed by past experience, appeared to be looking past the price of crude, analysts said.

"We have seen it before, and that's the key. It's not a new level and we didn't really see demand taper off, we didn't really see economic activity slow down because of it," said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn.

"A year ago we thought $70 would be the death knell for consumers. It wasn't."

[Last modified April 19, 2006, 01:57:07]