Sun, Feb 19, 2006 page10

• Wall Street rally kicks into high gear

  ROSY OUTLOOK The Dow Jones broke the psychological 11,000-points level for the first time in a month as the new Fed chief's comments calmed investor jitters

  • AFP
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  Wall Street's rally kicked into gear over the past week as investors shook off a variety of jitters and took comfort from new US Federal Reserve Chairman Ben Bernanke's comments on the economy.

  In the week to Friday, the Dow Jones Industrial Average jumped 1.79 percent to 11,115.32, moving back above 11,000 for the first time in a month.

  The blue-chip index is now up 3.7 percent for this year after falling 0.6 percent over last year.

  The broad-market Standard and Poor's 500 index advanced 1.59 percent for the week to 1,287.24 and the tech-heavy NASDAQ composite increased 0.91 percent to 2,282.36.

  Investors focused on Bernanke, who made his first congressional appearance as head of the central bank, and appeared to reassure investors that he would follow the path of his predecessor, Alan Greenspan.

  Bernanke left the door open to further interest rate hikes but said the economy was on a solid track.

  "Bernanke continued to sing from the same song book as Greenspan and assured markets [of] continuity in Fed messaging," said Steve Chan, economist at TD Bank Financial Group.

  The upbeat economic outlook was reinforced by robust reports on retail sales and housing starts, suggesting these key areas of the economy are not softening.

  "It's now evident that the US economy is headed for a very brisk first-quarter [growth] pace, with our above-consensus 4.8 percent real GDP forecast looking, if anything, too conservative," said Avery Shenfeld, senior economist at CIBC World Markets.

  The rosy outlook helped the Dow blue-chip index push decisively above 11,000, a key psychological barrier for the market, according to Bob Dickey at RBC Dain Rauscher.

  "And then, suddenly, the rain stopped, the clouds drifted away, and all the fairies came out to celebrate the downfall of the evil Bear King," he said.

  "Well, maybe it's not quite that much of a fairy tale, but the breakthrough and clear close above the 11,000 mark for the Dow does help to remove one of the more meaningful technical barriers that the market has been dealing with for the past three months," Dickey said.

  Al Goldman, market strategist at AG Edwards, agreed that the market tone was positive.

  "This market continues to perform in a very impressive fashion and we look for more upside," Goldman said.

  "It will not be a straight-up affair as this bull [market] is 40 months old. However, momentum remains up and there is plenty of cash on the sidelines if folks want to buy stocks," he said.

  But Linda Duessel at Federated Investments said she sees the market "stuck in the trading range that has persisted over the past two years" and argues this is likely to continue.

  "While the economy is moving forward, it is doing so at a slower pace. Although companies continue to report double-digit earnings gains, the rate of growth is slowing and forward guidance has been relatively tepid," she said.

  "And while the Federal Reserve may be nearing the end of this cycle of rate hikes, an upside breakout for stocks is unlikely until it's clear the Fed actually is done," Duessel added.

  Bonds firmed with the unusual "inversion" persisting in which short-term rates exceed those of long-term bonds.

  The yield on the 10-year US Treasury bond fell to 4.541 percent from 4.581 percent, and that on the 30-year bond dipped to 4.512 percent from 4.547 percent. Bond yields and prices move in opposite directions.
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