Markets & Finance

Dow Hits New Record after Bernanke Speech


The Fed chief's remarks suggested policymakers may keep interest rates steady. Also in focus: DaimlerChrysler restructuring, retail sales

Stocks rallied Wednesday, with the Dow Jones industrial average reaching a new all-time closing high, as investors cheered Federal Reserve Chairman Ben Bernanke's moderately upbeat testimony to Congress. A big automaker's realignment and some upbeat earnings news helped offset lackluster reports on January retail sales and December business inventories.

On Wednesday, the Dow Jones industrial average rose 87.01 points, or 0.69%, to 12,741,86. The broader Standard & Poor's 500 index added 11.04 points, or 0.76%, to 1,455.30. The tech-heavy Nasdaq composite was up 28.50 points, or 1.16%, to 2,488.38.

The rally was broad-based, with NYSE breadth 23-10 positive and Nasdaq breadth 18-12 positive.

In economic news Wednesday, Bernanke said in his prepared remarks that inflation is showing signs of easing. "Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes," the Fed chief said during the first leg of his 2-day appearance before lawmakers.

The testimony held little in the way of surprises, says Action Economics. "There's no sign the Fed will be moving off the sidelines anytime soon," the economic-research outfit notes.

Meanwhile, U.S. retail sales were disappointingly flat in January, following an upwardly revised 1.2% increase in December. Sales rose 0.3% excluding autos, from an upwardly revised 1.3% jump in December.

And U.S. business inventories were flat in December, as expected, but after a downwardly revised 0.2% increase in November (0.4% before). The overall inventory reading was just under expectations, according to S&P economists.

Investors will digest a number of reports due Thursday, including industrial production and the Philadelphia Fed's index of economic conditions.

Among stocks in the news Wednesday, DaimlerChrysler (DCX) was higher after the automaker said it's going to cut 13,000 jobs as part of a restructuring plan to save $4.5 billion by 2009. The company also reported a 40% drop in fourth-quarter profit.

In other earnings reports, Coca-Cola (KO) was lower after the soft drink maker posted a 22% drop in fourth-quarter profit.

The Nasdaq got a boost from strength in semiconductor equipment maker Applied Materials (AMAT), which logged sharply higher fiscal first-quarter earnings. CEO Mike Splinter also forecast a rise in orders for the second quarter.

Insurer MetLife (MET) was slightly lower despite reporting a five-fold increase in fourth-quarter earnings, beating analyst expectations.

Farm equipment maker Deere (DE) was sharply higher on an unexpectedly strong earnings report for its fiscal first quarter.

Office supplies retailer Office Depot (ODP) was lower despite posting a 27% uptick in fourth-quarter profit.

Elsewhere, shares of Alcoa (AA) dipped after surging Tuesday on reports of a possible takeover bid for the aluminum maker.

Nasdaq (NDAQ) was higher after J.P. Morgan resumed coverage on the stock with an overweight recommendation. Shares plunged Tuesday on a lower earnings outlook.

In the energy markets, April West Texas Intermediate crude oil futures fell $1.06 to $58.00 a barrel after briefly bouncing above $59 following a weekly inventory report showing an unexpected decline in crude supplies.

European markets finished higher. The FTSE-100 index in London rose 39.4 points, or 0.62%, to 6,421.2. Germany's DAX index added 65.84 points, or 0.95%, to 6,961.18. In Paris, the CAC 40 index was up 43.15 points, or 0.76%, to 5,725.84.

Asian markets ended higher. In Japan, the Nikkei 225 index gained 131.19 points, or 0.74%, to 17,752.64. In Hong Kong, the Hang Seng index advanced 77.66 points, or 0.39%, to 20,209.91. Korea's Kospi index climbed 17.66 points, or 1.25%, to 1,436.1.

Treasury Market

Treasury yields skidded after the soft retail sales data and benign Fed testimony suggested central bankers may remain on hold. Rates are likely to continue falling unless Thursday's heavy dose of economic data is stronger than expected, notes S&P MarketScope. The 10-year note rose 19/32 to 99-06/32 for a yield of 4.73%. The 30-year bond rallied 34/32 to 98-25/32 for a yield of 4.83%.

Hogan is a reporter for BusinessWeek.com in New York.

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