Dow up as market continues to mull Fed

Wall Street moved one step closer to resuming its stalled year-end rally on Wednesday after both the Dow and the S&P 500 overcame initial sluggishness to extend their gains for a second consecutive day.

The Dow Jones Industrial Average, helped by solid gains from Boeing and Honeywell, rose by as much 93 points in midsession before easing back to close up 0.6 per cent, or 59.79 points, at 10,883.51.

The S&P 500 traded 0.4 per cent, or 5.31 points, higher at 1,272.74. However, the Nasdaq Composite index missed out on the rally. The index finished 0.1 per cent, or 2.41 points, lower at 2,262.59, weighed down by a slump in shares of Apple Computer.

Peter Cardillo, chief strategist at SW Bach said the rally was a follow-through from the Federal Reserver’s dovish statement on Tuesday.

With the Fed signalling that further rate rises would depend on economic data, Mr Cardillo said bulls took heart from news of lower import prices and a record trade deficit – data which was interpreted as signalling that inflationary pressures might be lessening.

The bond market certainly saw it that way. Bond yields fell sharply as investors began betting more strongly that the cycle of monetary tightening would end sooner rather than later.

Shares in rate-sensitive stocks such as homebuilders jumped, with the Philadelphia Homebuilding index gaining 1.9 per cent.

Industrial blue chips were the day’s top performers. Shares in Boeing rose to an all-time high after the aerospace giant beat rival Airbus to win a 115-plane order, valued at up to $18bn, from Qantas Airways, Australia’s biggest carrier.

After finishing Tuesday’s session at $70.59 Boeing advanced another 1.2 per cent to $71.45. Its shares have risen 40.6 per cent this year, taking strength from steady plane sales.

Fellow Dow component Honeywell International jumped 4.5 per cent to $37.50 after it reiterated its profit outlook for 2005 while raising its sales guidance for fiscal 2006.

Technology stocks, however, were under pressure after two brokers downgraded Apple Computer. Shares in the iPod maker slumped 4 per cent to $72.01 after Bear Stearns and Banc of America both cut their ratings, citing valuation concerns.

On the deals front, Anteon International surged more than $13, or 32.5 per cent, to $54.02 after defence contractor General Dynamics said that it would buy the information technology provider for $2.2bn, or $55.50 a share. Shares in General Dynamics declined 0.4 per cent to $111.68.

Deal talk also swirled in the utilities sector, with FPL Group reportedly in talks to buy Constellation Energy in a deal valued at more than $11bn.

FPL inched up 0.3 per cent to $43, while Constellation jumped 8.6 per cent to $61.10.

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