High-yield/macroeconomics (fka YIELD)

[Preciouslife1]

Rate cut hopes lift Wall Street
Mon Jan 28, 2008 6:23pm EST

http://www.reuters.com/article/hotStocksNews/idUSL2871979920080128?sp=true

NEW YORK (Reuters) - Stocks surged on Monday as investors snapped up shares of manufacturers and downtrodden banks after more weak housing data bolstered expectations the Federal Reserve will slash rates this week.

A sharp drop in December new-home sales cemented the view that Fed policy-makers, following last week's emergency rate cut, will make another deep cut in interest rates on Wednesday after the conclusion of a two-day meeting. All three major stock indexes gained more than 1 percent.

While the housing data in itself was unsettling, the prospect of lower interest rates coupled with a proposed $150 billion economic stimulus package helped lift shares of manufacturers like General Electric Co (GE.N: Quote, Profile, Research) and home builders like Hovnanian Enterprises (HOV.N: Quote, Profile, Research).

The S&P financials index rose 2 percent, with index gainers outnumbering decliners by 6 to 1. It was the latest indication that investors are scouring the sector for bargains after months of relentless selling stemming from subprime mortgage losses currently amounting to more than $100 billion.

Shares of Bank of America Corp (BAC.N: Quote, Profile, Research), the No. 1 U.S. bank by market value, ended up more than 4 percent.

EYES ON BERNANKEv

As global stock markets tumbled early last week, the U.S. central bank led by Ben Bernanke chopped rates by three-quarters of a percentage point in an emergency move, bringing the federal funds rate down to 3.5 percent.

"There's hope that Ben Bernanke will do more on Wednesday," said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio. "Last week's 75 basis-points cut was a nice turnaround, and some kind of follow-through will be good too."

The Dow Jones industrial average .DJI rose 176.72 points, or 1.45 percent, at 12,383.89. The Standard & Poor's 500 Index .SPX shot up 23.36 points, or 1.76 percent, at 1,353.97. The Nasdaq Composite Index .IXIC closed up 23.71 points, or 1.02 percent, at 2,349.91.

Trading was volatile, with the stock market initially struggling to advance after the market opened. Toward the close the Nasdaq briefly turned negative but then immediately rebounded. Bernanke and top officials are scheduled to meet Tuesday and Wednesday to decide rate policy.

Shares of GE, seen as a proxy for the economy because of its diversified businesses, finished up 2.1 percent at $34.72 on the New York Stock Exchange, making the stock the biggest gainer on the S&P 500, while those of Caterpillar Inc (CAT.N: Quote, Profile, Research), also a bellwether, climbed 3.5 percent to $68.21, to be the top advancer on the Dow.

BANKS, HOME BUILDERS LEAP

Among banks, shares of Bank of America Corp jumped 4.4 percent to $41.20 on the NYSE. Standouts among home builders included Hovnanian Enterprises Inc (HOV.N: Quote, Profile, Research), an upscale U.S. home builder, whose shares soared 20.44 percent to $8.78.

Shares of No. 6 U.S. home builder Beazer Homes USA (BZH.N: Quote, Profile, Research) advanced 22.2 percent. The Dow Jones home construction index .DJUSHB gained 5.9 percent.

Government data showing a bigger-than-expected drop in new-home sales last month strengthened the argument for a Fed rate cut, analysts said. Lower rates could ease the strain on mortgage borrowers and ease the cost of money for businesses.

U.S. short-term interest rate futures FFG8 showed perceived chances that the Fed would approve a half-percentage point rate cut on Wednesday rose to 90 percent.

Earnings news was mixed. Fast-food restaurant McDonald's Corp (MCD.N: Quote, Profile, Research) fell 5.6 percent to $51.07 after posting flat U.S. sales in December, but specialty glass maker Corning Inc (GLW.N: Quote, Profile, Research) finished up 3.3 percent at $23.10 after reporting higher profit, boosted by strength in its display business.

After the bell, American Express Co (AXP.N: Quote, Profile, Research) posted a 10 percent drop in fourth-quarter profit and its revenue missed forecasts, sending the credit card company's stock down more than 3 percent from a NYSE close of $47.40. For details, ID:nN28505112

Shares of VMware Inc (VMW.N: Quote, Profile, Research), the leading maker of virtualization software, reported quarterly revenues that fell short of Wall Street estimates after the bell, sending its shares plunging over 23 percent from an NYSE close of $83. ID:nN28493424

On the Nasdaq, shares of Qualcomm Inc (QCOM.O: Quote, Profile, Research) were the top advancer in regular trading, ending up 1.3 percent at $40.50. The mobile phone chip maker extended a climb fueled in part by its upbeat outlook from last week.

Trading was moderate on the New York Stock Exchange, with about 1.64 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 2.11 billion shares traded, below last year's daily average of 2.17 billion.

Advancing stocks outnumbered advancing ones by a ratio of about 7 to 2 on the NYSE and by 9 to 5 on Nasdaq.