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| Stocks Rise Modestly As Fed Meets |
| Washington, 20.03.2007 |
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| By THE ASSOCIATED PRESS
Published: March 20, 2007
Filed at 12:31 p.m. ET
NEW YORK (AP) -- Wall Street cautiously advanced Tuesday, with investors placing modest bets that the Federal Reserve won't indicate this week that it is leaning toward raising interest rates.
Investors got some reassurance on the economy from the Commerce Department, which reported that construction of new homes and apartments rose by 9 percent in February to a seasonally adjusted annual rate of 1.525 million units, higher than the expected 1.450 million. But the market's enthusiasm was muted, as applications for building permits dropped.
The mixed housing data arrived as the Federal Reserve began its two-day meeting on rates. Investors are trading tentatively ahead of the Fed's decision Wednesday, trying to determine if recent market tumbles and economic data will prompt the central bank to shift its posture on rates after several months of leaving them steady.
''It does seem like a wait-and-see pattern for the Fed,'' said Neil Massa, equity trader at John Hancock Funds, adding that most market watchers are anticipating little or no change in policy makers' statement. ''I don't know that any of the data we've seen is going to change their mind. The cuts expected for this year might be pushed out even further.''
The Fed has been avoiding lowering rates, given that inflation is still high. A rate hike could rein in consumer spending and hurt the housing market by making mortgages more expensive.
In midday trading, the Dow Jones industrial average rose 41.66, or 0.34 percent, to 12,267.83.
Broader stock indicators were also higher. The Standard & Poor's 500 index was up 6.84, or 0.49 percent, at 1,408.90, and the Nasdaq composite index rose 14.03, or 0.59 percent, to 2,408.44.
Bonds rose, as the Treasury markets shrugged off the housing data and an announcement from China that the country doesn't intend to build up its reserves. The yield on the benchmark 10-year Treasury note fell to 4.54 percent from 4.57 percent late Monday.
The housing data, showing a rise in construction but a fall in permit applications, didn't provide a clear enough picture about the sector's status to trigger a rally or a selloff in stocks ahead of the Fed meeting. The Fed has kept rates on hold for five straight meetings following two years of gradual hikes, and is widely expected to do so again this week.
Economists, including former Federal Reserve Chairman Alan Greenspan last week, have said that if the housing market doesn't weaken too substantially, the financial troubles of subprime lenders shouldn't leak into the broader economy.
Worries over subprime lenders, who make loans to people with poor credit ratings, continue to dog the markets, but they were somewhat alleviated Tuesday by news that subprime mortgage lender Accredited Home Lenders Holding Co. received a commitment for a $200 million term loan from Farallon Capital Management LLC, a San Francisco-based money manager.
Accredited Home rose $2.07, or 23 percent, to $11.02.
Stocks also won some support from talk of possible acquisitions. An investment group said it is offering $5.93 billion in cash to take Affiliated Computer Services Inc. private, while speculation arose over media reports on several other deals, that cell phone manufacturer Nokia Corp. is trying to buy Palm Inc., that an investment firm is close to signing a deal to acquire Claire's Stores, and that American International Group Inc. could be attempting to acquire Prudential PLC.
Affiliated Computer Services rose $8.53, or 17 percent, to $59.84.
Palm rose 76 cents, or 4.2 percent, to $18.90, and Nokia fell 11 cents to $22.05.
Claire's rose 38 cents to $31.15.
Ever-surging takeover activity has been a positive signal to investors that the economy isn't weakening quickly enough to prevent companies from inking deals. A potential deal to unite Dutch bank ABN Amro Holding NV with British bank Barclays PLC helped lift the Dow Jones industrials more than 115 points on Monday.
Massa noted, however, that Monday's rise occured amid relatively light volumes, a sign that many investors are waiting on the sidelines until the Fed's statement on Wednesday. ''I would wait until tomorrow to make a call,'' he said.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 565.2 million shares.
Overseas, Japan's Nikkei stock average rose 0.90 percent. In afternoon trading, Britain's FTSE 100 gained 0.23 percent, Germany's DAX index advanced 0.34 percent, and France's CAC-40 rose 0.79 percent.
Gold prices rose. The dollar rose against the euro, but slipped versus the yen.
Crude futures rose 20 cents at $56.80 a barrel on the New York Mercantile Exchange, while gasoline futures leaped to a more than six-month high due to refinery disruptions ahead of the summer driving season.
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