Dow up 332 as Fed leaves rates alone

By Charley Blaine and Elizabeth Strott

Stocks surged higher today after crude oil dropped below $120 a barrel for the first time in three months and the Federal Reserve left its key interest rates unchanged.

At the close, the Dow Jones industrials were up 332 points, or 2.9%, to 11,616. The Standard & Poor's 500 Index was up 36 points, or 2.9%, to 1,285, and the Nasdaq Composite Index was up 64 points, or 2.8%, to 2,350.

The Dow and S&P 500 gains were their biggest since April 1. The Nasdaq's gain was its largest since July 16, when it jumped 69 points.

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The big rally was a function of bargain hunters doing some buying, short-covering and a shift away from volatile commodity stocks. Two groups that appear to be benefitting from this shift: technology and financial stocks.

Wednesday may well offer a good look at whether today's rally has real strength. The government reports on oil inventories. And the market will give a very bullish signal if the Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund can move above $23.09, its intraday high on July 23. The ETF, up 5.1% to $22.54 today, is also up 34% from its intraday low of $16.77 on July 15.

After the close, shares of networking giant Cisco Systems (CSCO, news, msgs) were up 3.2% to $23.37 after beating Wall Street estimates and saying it was still comfortable with a long-term revenue growth rate of 12% to 17%.

But Whole Foods Markets (WFMI, news, msgs) shares were off substantially after its fiscal-fourth-quarter earnings missed Wall Street estimates.

Crude oil closed at $119.17 a barrel in New York, down 1.8% from Monday and off 19% from its intraday high of $147.22 a barrel on July 11. It was the lowest close for crude since May 5, when it finished at $119.57.

Fed funds rate is left at 2%

The Fed, meanwhile, left its key federal funds rate and discount rate unchanged at 2% and 2.25%, respectively. The federal funds rate is the rate banks charge each other for overnight loans and is the basis for most U.S. interest rates, from corporate loans to credit card rates.

"Labor markets have softened further and financial markets remain under considerable stress," the Fed statement on the rate decision said. "Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters."

While the Fed saw inflation as a "significant concern," it said it believes inflation pressures will ease "in coming quarters."

Most analysts believe the Fed's decision means it won't be raising rates until early 2009.

Today's decision was widely expected because the nation's financial system just averted the possible collapse of Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), the two largest providers of mortgage capital. To keep the two companies afloat, the federal government has readied a taxpayer-financed bailout that could cost billions.

The Fed's reluctance to push on inflation is a recognition that it is stuck between trying to boost the economy while inflation pressures from higher energy and food costs and a declining dollar continue to grow.

Most economists believe the Fed will leave key rates unchanged for the rest of 2008. David Wyss, chief economist at Standard & Poor's, sees the Fed starting to raise rates only next spring.

In addition to stress in the financial system, new construction and sales activity remain at weak levels, auto sales have slumped sharply, and unemployment is growing.

Falling commodities fuel the rally

Commodity prices have been easing a lot in recent weeks, and their decline today gave the market its real ammunition.

Not only did crude fall, but gold was off 2.4% to $886.10 an ounce. Copper fell 0.7% to $3.417 a pound, and silver was off 3.3% to $16.572 an ounce. Corn fell 10.25 cents a bushel to $5.2525 in Chicago. That was down 1.9% from Monday. So far this month, corn is off 27%.

American International Group (AIG, news, msgs) was the leading Dow stock today, rising 12% to $29.89. The gain was worth 23 points of the Dow's gain. The stock is still down 49% on the year after losing 26% in the first quarter and 28% in the second quarter.

Only one of the 30 Dow stocks was lower today: Chevron (CVX, news, msgs), which fell 0.4% to $82.49.

The S&P 500 was led by Fannie Mae, up 15% to $13.60, and Lehman Bros. (LEH, news, msgs), up 12.8% to $20.24.

The Nasdaq-100 was led by Apple (AAPL, news, msgs), Qualcomm (QCOM, news, msgs) and Research In Motion (RIMM, news, msgs).

A total of 456 S&P 500 stocks ended the day with gains. Ninety-five stocks in the Nasdaq-100 Index ($NDX.X) moved higher; the index closed up 65 points, or 3.6%, to 1,870.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$119.17	$121.41	-$2.24	-3.96%	24.16%
Heating oil (per gallon)	$3.2820	$3.3501	-$0.0681	-4.56%	23.88%
Natural gas (per million BTU)	$8.7260	$8.7260	$0.0000	-4.31%	16.61%
Unleaded gasoline (per gallon)	$2.9564	$3.0002	-$0.0438	-3.01%	18.69%

Non-U.S. business powers Cisco

Cisco Systems made Wall Street happy with quarterly earnings of $2 billion, or 33 cents a share. After one-time items, earnings were 40 cents, a penny better than the Reuters estimate. Revenue was up 9.9% to $10.4 billion; analysts had expected $10.3 billion.

The company said that emerging market orders grew around 10% in its fiscal fourth quarter, while orders in the United States and Canada grew 7%. European orders grew 11%.

CEO John Chambers saw mixed signals in the economy, stock market and energy costs. But he said this was a "relatively short-term challenge." His best estimate was that the current environment would last a few more quarters.

While Chambers avoided giving an outlook for the 2008-2009 fiscal year, he forecast that revenue would grow 8% in the first quarter and 8.5% in the second.

Whole Foods slammed by the economy

Because of its disappointing third-quarter results, natural-foods grocer Whole Foods Market said it is cutting back on planned store openings and suspending its quarterly dividend to shareholders.

The weak results mark the latest bad news for a former Wall Street darling, whose bright, cavernous stores have long been popular with health-conscious shoppers. But rapid sales growth has cooled in recent years. The Wall Street Journal said the results mark the latest sign that the sagging economy is causing even consumers in higher income brackets to pare spending.

The natural foods grocery chain, which a year ago bought rival Wild Oats for $565 million, said annual sales growth would likely trail previous forecasts even though sales at established stores rose 1.5% in the first four weeks of its current quarter.

Whole Foods said it earned $33.9 million, or 24 cents a share, down from $49.1 million, or 35 cents a share, a year ago. Reuters said analysts had expected a profit of 31 cents a share. The Wild Oats deal knocked 3 cents a share from earnings.

Revenue rose nearly 22% in the quarter to $1.8 billion, below the $1.9 billion analysts had expected.

News Corp. profits improve

Media giant News Corp. (NWS, news, msgs) said today its quarterly profit rose 27% on improved results at its film studios and cable television networks, as well as gains related to its sale of stakes in Fox Sports Bay Area and Gemstar-TV Guide.

The media conglomerate said it earned $1.1 billion, or 43 cents a share, up from $890 million, or 28 cents a share, a year earlier.

Revenue rose 17% to $8.59 billion. Analysts had expected revenue of $8.59 billion. In a statement, Chairman Rupert Murdoch said the company faces "more challenging macro-economic conditions" in fiscal 2009, but is positioned to deliver "continued, if somewhat less robust, growth."

The stock, which was up 4.7% to $15.25 in regular trading, rose an additional 0.4% to $15.31 in after-hours trading. The stock, however, has fallen nearly 40% from its April 2007 peak.

Lehman Bros. boosts financials

The battered financial sector got a lift today after talk that Lehman Bros. may sell some of its troubled mortgage securities to BlackRock (BLK, news, msgs).

Lehman may sell its entire investment management business, or just its Neuberger Berman wealth management unit, as previously rumored, Reuters reported.

The Amex Broker/Dealer Index ($XBD.X, news, msgs) rose 4.6% to 156, and Merrill Lynch (MER, news, msgs), which last week announced plans to sell some of its risky assets, was up 6.9% to $28.22. Morgan Stanley (MS, news, msgs) rose 4.2% to $43.20.

P&G profit rises

Procter & Gamble (PG, news, msgs) this morning reported a 33% jump in fiscal-fourth-quarter profit, and shares rose 3.3% to $67.97.

The Dow component earned $3 billion, or 92 cents per share, in the quarter -- up from $2.27 billion, or 67 cents per share, in the same period a year ago. Excluding charges, P&G earned 80 cents, topping Wall Street's estimate by 2 cents.

Revenue rose 10% to $21.3 billion, the company said.

The company cautioned that rising costs would squeeze gross margins in the current quarter by 2.5 to 3 percentage points. It raised prices on some of its products earlier this year and has announced further increases set for later this year.

Procter & Gamble products include Tide laundry detergent, Iams pet food and Pantene shampoo.

Short hits from the markets -- 4 p.m.

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.710%	1.660%	0.050	4.59%	-45.54%
5-year Treasury note yield	3.281%	3.254%	0.027	0.46%	-5.04%
10-year Treasury note yield	4.007%	3.972%	0.035	0.70%	-0.69%
30-year Treasury bond yield	4.629%	4.589%	0.040	0.56%	3.81%
Currencies
U.S. Dollar Index	74.055	73.620	0.435	0.86%	-3.44%
British pound in dollars	$1.9558	$1.9619	-0.0061	-1.37%	-1.68%
Dollar in British pounds	£0.5113	£0.5097	0.0016	1.39%	1.71%
Euro in dollars	$1.5458	$1.5584	-0.0125	-0.91%	5.77%
Dollar in euros	€ 0.6469	€ 0.6417	0.0052	0.92%	-5.45%
Dollar in yen	108.24	108.19	0.05	0.33%	-3.23%
Canadian dollar in U.S. dollars	$0.959	$0.965	-$0.0063	-1.90%	-3.43%
U.S. dollar in Canadian dollars	$1.044	$1.036	$0.0080	2.05%	3.60%
Commodities
Gold	$886.10	$907.90	-$21.80	-3.97%	5.74%
Copper	$3.4170	$3.4400	-$0.02	-6.68%	12.36%
Silver	$16.5720	$17.1400	-$0.57	-6.85%	11.07%
Corn	$5.2525	$5.3550	-$0.10	-10.60%	15.31%
Crude oil (NYMEX) (per barrel)	$119.17	$121.41	-$2.24	-3.96%	24.16%