US stocks rally

By Kristin Roberts



NEW YORK: Stocks rallied on Friday, as Wall Street celebrated what it deemed
the end of uncertainty rather than commiserating over an economy that is so hot,

it just begs for aggressive action from the Federal Reserve.

Traders and analysts said they expect the central bank to hike borrowing

costs by 50 basis points on May 16, instead of a more conservative 25 basis

points, after news that the U.S. unemployment rate fell to a 30-year low.

"There was some discussion about whether the Federal Reserve would raise

rates by 25 or 50 basis points but the unemployment number makes it look like it

will be 50," said Guy Truicko, portfolio manager at Unity Management.

"There is kind of a relief here that it is going to be 50," he

said. "I think the removal of the uncertainty has people coming back into

stocks, as crazy as it seems."

Technology shares, which some market players see as less vulnerable to rising

interest rates, shot higher to boost both the blue-chip Dow Jones industrials

and the Nasdaq. But volume was light, marking the slowest trading session of the

year.

The Dow Jones industrial average surged 165.37 points, or 1.59 percent, to

end at 10,577.86, after sliding about 400 points in the previous three sessions.

Hewlett-Packard Co. jumped 4-1/4 to 136-5/16, and chipmaker Intel Corp. rose

3-13/16 to 123-3/8.

General Electric Co., the conglomerate that owns the NBC television network,

also pushed the Dow higher. It climbed 2-9/16 to 156-3/8.

The tech-driven Nasdaq composite index spiked up 96.58 points, or 2.60

percent, to 3,816.82 on the back of strong gains in semiconductor and

biotechnology shares.

Broader market measures also pushed higher, with the Standard & Poor's

500 index up 23.06 points, or 1.64 percent, at 1,432.63, and the Wilshire 5000

up 204.07 points, or 1.55 percent, at 13,385.83.

Only 1.19 billion shares changed hands on the Nasdaq while the New York Stock

Exchange logged just 800.47 million shares traded - leaving both markets with

their lightest days in 2000.

Before the market opened, the Labour Department reported that the U.S.

unemployment rate fell to 3.9 percent in April, matching a January 1970 low,

while economists had expected the rate to drop to 4.0 percent, from 4.1 percent

in March.

Despite the lower-than-anticipated unemployment rate, hourly earnings in

April rose by an expected 0.4 percent to $13.64 and payrolls gained 340,000,

slightly less than the 358,000 forecast. A shrinking labour pool can force

employers to jack up wages to attract or retain workers, sparking inflationary

pressures.

That solidified the belief on Wall Street that the Federal Reserve will opt

for the tough 50-basis-point rate increase when it meets May 16, completely

dismissing the idea of its standard quarter-percentage-point move.

"I think we've gotten rid of the uncertainty," said Charles Payne,

head analyst at independent market research firm Wall Street Strategies.

"The new spin is now that we'll get 50 basis points and the thinking is

that it gives the Fed the leverage to go without an increase at the following

meeting, giving the market time to breathe," he said.

All but three of the 29 top economists surveyed forecast a

half-percentage-point move by the Fed after Thursday's jobs data, more than

double the 12 who were predicting such a move a week ago.

Growing speculation of aggressive Fed action was not as well received by the

bond market. The 10-year U.S. Treasury note lost 18/32, with the yield rising to

6.51 percent from Thursday's close of 6.46 percent. The 30-year U.S. Treasury

bond slipped 11/32, with the yield rising to 6.18 percent from Thursday's close

of 6.16 percent.

Interest-rate-sensitive equities ended unscathed, with the Philadelphia Stock

Exchange's bank index up 0.34 percent at 747.48 and the S&P retail index up

1.16 percent to 868.86.

Merger news boosted Cisco Systems, up 4-1/8 at 67-3/4, with 45 million shares

traded, after the computer networking equipment maker said it would buy

ArrowPoint Communications in a stock deal worth about $6 billion. ArrowPoint

rose 5-3/8 to 140-3/16.

ADC Telecommunications Inc. jumped 5-7/8 to 63-1/8 on a deal to buy Swedish

laser manufacturer Altitun AB in a stock swap worth $872 million.

Biotech shares also powered higher, extending gains marked throughout the

week. The American Stock Exchange's biotech index soared 5.97 percent to 533.44

and the Nasdaq biotech gauge jumped 4.39 percent to 1,018.24.

"People really, really want to believe in biotech and not just for

financial reasons," said Payne of Wall Street Strategies. "People want

to believe that they'll live to be 150 years old and they're giving these

companies a lot of leeway."

(C) Reuters Limited 2000.