US stocks gain as rate fears ease

NEW YORK: US stocks edged higher on Friday, led by banks and brokers, after fresh signs of slowing US economic growth lifted hopes that the Federal Reserve may keep its foot off the brakes and end its 14-month-old campaign of interest rate increases.

Higher interest rates tend to reduce demand for credit, which can hurt banks' profitability. They can also make returns on stocks less attractive than on bonds or bank deposits, which in turn can negatively impact broking revenues. Among the biggest gainers were banking and brokerage group J.P. Morgan & Co., which advanced 8-1/4 to 143-1/4, and investment bank Lehman Bros., which rose 9 to 128-1/4.

"Brokerage stocks have been the best performers of all (financial service stocks)," said Peter Azcue, of market research firm Value Line, noting that they have enjoyed the boom of the "New Economy" by acting as underwriters of stock offerings for high-technology firms. "Things are slowing down but not too much," he added.

Still, lingering uncertainty about the sustainability of corporate profit growth tempered the market's enthusiasm and led to mixed results for technology issues, with some leaders such as Intel Corp. and Microsoft Corp. dropping.

Based on early and unofficial closing figures, the blue chip Dow Jones industrial average gained 61.17 points, or 0.57 per cent, to 10,767.75. The technology-dominated Nasdaq composite index advanced 27.48 points, or 0.73 per cent, to 3,787.36. "The market wants to go up, but there just isn't enough 'oomph' there," said Marshall Acuff, an equity analyst at Salomon Smith Barney.

Wall Street had bounded up early in the session after a tame July jobs report, which analysts said lowered the odds the central bank would boost interest rates again this month. But the morning rally quickly fizzled. "Markets clearly have entered the summer doldrums," said A.C. Moore, chief investment strategist at Dunvegan Associates. "Investors may be wanting to take some time out to see where the wind is blowing."

Dow component Walt Disney Co. gained 1-1/2 to 42-7/16 after the entertainment giant reported sharply higher fiscal third-quarter net income, including a doubling in profits at its broadcast unit. Some of the Dow's old-line stocks suffered, however. Drug maker Johnson & Johnson fell 11/16 to 96-9/16, while rival Merck & Co. slumped 1-7/16 to 73-13/16. The broader Standard & Poor's 500 Index finished up 10.37 points, or 0.71 per cent, at 1,462.93. Brand-name tech stocks helped prop up the Nasdaq, with networking giant Cisco Systems Inc. gaining 1-3/16 to 65-9/16.

Database software company Oracle Corp., among the Nasdaq's most heavily traded shares, climbed 4-1/8 to 81-9/16. A big gainer was Emulex Corp., which jumped 20-3/8 to 67-15/16, after the data networking company posted fiscal fourth-quarter earnings of 25 cents a diluted share, up sharply from 10 cents a share a year ago. But the semiconductor sector, whipsawed in recent sessions, took another fall.

Computer chip giant Intel slumped 2-1/2 to 62-9/16, while the Philadelphia Stock Exchange's Semiconductor Index slid 3.11 per cent. The Labour Department said 108,000 jobs were lost in July, while a boost of 58,000 jobs had been expected. But the decline was due largely to temporary Census workers leaving the work force. The unemployment rate held steady at 4 percent in July, the same as in June.

Slightly unsettling to investors was news that average hourly earnings, a measure of wage pressures, rose by a higher-than-expected 0.4 percent, matching June's rise. The Federal Reserve has been on the watch for wage-level inflation as it mulls what to do next with interest rates.

The Federal Reserve is to meet on Aug. 22 to decide whether to raise interest rates again for what would be the seventh time since June 1999.

"I think the market saw the jobs report as something that would not drive the market either up or down," said Peggy Farley, president of Ascent Meredith Asset Management. "The market is looking at future earnings and the possibility that they may be grimmer than they have been."

(C) Reuters Limited 2000.