US stocks rallied yesterday as investors snapped up shares of financial companies and big manufacturers on hopes that the Federal Reserve would keep slashing interest rates to forestall an economic downturn.
Fed policy-makers are due to announce a rate decision on Wednesday at the end of their two-day meeting, and investors are counting on lowered borrowing costs for businesses and consumers to stimulate economic activity.
Shares of General Electric Co, seen as a proxy for the economy because of its diversified businesses, rose as did interest-rate sensitive companies, such as credit card provider American Express Co and Bank of America Corp.
Shares of home builders were also among the standouts, with the Dow Jones home construction index up 3.73 percent.
Government data showing a bigger-than-expected drop in new-home sales last month strengthened the argument for Fed rate cut, analysts said. Lower rates could ease the strain on mortgage borrowers.
"The Fed is focused on public confidence," said Bruce McCain, head of the investment strategy team for Key Private Bank in Cleveland. A 50 basis points cut "is what we'd expect from the Fed."
The Dow Jones industrial average was up 77.96 points, or 0.64 percent, at 12,285.13. The Standard & Poor's 500 Index was up 12.16 points, or 0.91 percent, at 1,342.77. The Nasdaq Composite Index was up 8.74 points, or 0.38 percent, at 2,334.94.
Responding to a global stock market rout early last week, the US central bank chopped rates by three-quarters of a percentage point, bringing the federal funds rate down to 3.5 percent.
GE was up 1.5 percent to US$34.49 while heavy equipment maker Caterpillar Inc gained 4 percent to US$68.57. American Express gained 2 percent to US$46.41.
Earnings news was mixed. Shares of McDonald's Corp fell 6.3 percent to US$50.70 after the fast-food restaurant operator posted flat sales in December. But shares of specialty glass maker Corning Inc rose 3.4 percent to US$23.14 after it reported a higher profit, boosted by strength in its display business.
Shares of insurer American International Group Inc climbed 2.8 percent to US$54.69, while shares of Bank of America, the No. 1 US bank by market value, jumped 3 percent to US$40.63 on the New York Stock Exchange. Among home builders, shares of Toll Brothers gained 3.5 percent to US$22.19.
On the Nasdaq, shares of Research In Motion Ltd, the maker of BlackBerry devices, climbed 1.2 percent to US$92.09.
According to Reuters data, the S&P 500 index started the week at its most oversold condition since October 2002, as measured by the relative strength index. US short-term interest rate futures showed perceived chances that the Fed would approve a half-percentage point rate cut on Wednesday rose to 90 percent.
Investors are hoping rate cuts, together with a fiscal economic stimulus package worth at least US$150 billion, will help revive growth and avoid a recession.