Wall St cruises to best week of 2005

Easy did it for Wall Street this week as the leading indices put a disappointing January behind them to record their best week since the start of the year.

By Friday's close, the Dow Jones Industrial Average was 1.1 per cent higher at 10,716.13 while the S&P 500 index gained 1.1 per cent to 1,203.03. The Nasdaq Composite had advanced 1.4 per cent to 2,086.66. All three reached new highs for the year.

For the week, the Dow was up 2.8 per cent as the S&P 500 index added 2.7 per cent and the Nasdaq gained 2.5 per cent, stretching the winning streak to two weeks and posting the best weekly showing since the US elections last November.

Ken Tower, chief market analyst at CyberTrader, said the indices needed to stay above Thursday's intraday lows for the market to rally next week.

However, Dennis Gartman, editor of an eponymous newsletter on the markets, noted the Nasdaq Composite had broken its rising trend and that "the volume on rallies is less than the volume that swells on weakness . . . This is a market in trouble . . . very real trouble".

The hangover of a dispiriting January loomed large as some market watchers warned investors Wall Street's best levels for the year could already be behind it.

This was particularly the case for those who felt January set the tone for the rest of the year.

A widely anticipated quarter-point increase in benchmark interest rates by the Federal Reserve on Wednesday and an accompanying statement that was identical to the previous one failed to stir traders into a new course of action.

Other economic data failed to offer more clarity on the US economy as eyes remained firmly fixed on on Friday morning's monthly jobs report, which disappointed many expectations. Nevertheless, the creation of 147,000 jobs in the world's largest economy last month was balanced by comments from Alan Greenspan, the Fed chief, that the US trade gap could be reduced.

The signs of sluggish job growth came hard on the heels of figures showing reduced labour productivity, which could hint at a possible increase in demand for labour or inflationary pressures in the economy.

Several economists agreed, however, that this would not be enough to sway the Federal Reserve from its current cycle of monetary tightening.

Richard Bernstein, chief US strategist at Merrill Lynch, noting that "investors are still enamoured . . . with the US consumer", issued a stern warning on the effects of rising interest rates on US consumption.

He said: "The combined threat of tightening of monetary policy and a weaker dollar pretty much ensure that the headwinds the US consumer has been able to navigate will continue to increase in intensity and may soon reach gale force."

Throughout the week, continuing news of merger-and-acquisition activity and some positive earnings numbers offered evidence that fear had finally turned into greed in Corporate America.

SBC Communications announced the $16bn takeover of AT&T early in the week, sending shares in the former up 0.6 per cent on the day as the latter declined 2.6 per cent. In the newspaper sector, Lee Enterprises said it would buy Pulitzer for about $1.4bn in cash, with shares in Lee up 1.5 per cent as Pulitzer added 0.9 per cent on Monday.

In the financial sector, MetLife announced the purchase of Citigroup's Traveler's Life & Annuity unit, while the spin-off of its financial advisory arm sent American Express shares 6.4 per cent higher on Tuesday.

However, it was quarterly earnings from the dotcom sector that attracted the most attention.

Google,the popular internet search engine, saw its shares put on 7.3 per cent on Wednesday as investors reacted to quarterly earnings that exceeded analyst estimates by a wide margin.

But Amazon.com offered a counterbalance when it announced after the Wednesday close results that undershot expectations, sending shares in the largest internet retailer 14.6 per cent lower on Thursday.

Traditional retailers gave a mixed picture of the sector in January, with some reporting growth in same-store sales while others saw declines.

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