US stocks: Market rallies, buoyed by Fed

NEW YORK - US stocks rallied on the first trading day of 2006 on Tuesday, boosted by signs the Federal Reserve is nearly done raising interest rates and by energy shares' strong gains as oil prices jumped.

The Nasdaq Composite and Standard & Poor's 500 stock indexes registered their biggest point gains since April after minutes of a Fed policy meeting signaled the central bank may be close to ending its 1 1/2-year cycle of interest rate increases.

The blue-chip Dow industrial average posted its biggest percentage gain in more than 2 months.

Also fueling stocks' strong start in 2006 were energy companies like Exxon Mobil Corp., which posted its biggest single-day percentage rise in nearly 4 years, as crude prices rebounded amid a natural gas pricing row between Russia and Ukraine.

The Dow Jones industrial average was up 129.91 points, or 1.21 per cent, at 10,847.41. The Standard & Poor's 500 Index was up 20.51 points, or 1.64 per cent, at 1,268.80. The technology-laced Nasdaq Composite Index was up 38.42 points, or 1.74 per cent, at 2,243.74.

Stocks had stayed flat until midafternoon, with some support from energy shares, but after the release of the Dec. 13 minutes of the Fed's Open Market Committee meeting they shot higher.

Following their December meeting Fed officials said "some further measured policy firming" was likely, but in the minutes of that meeting Fed officials stated "additional firming steps required probably would not be large."

"What the Fed is telling us here is that they are not of the mind to put so much tightness on the economy as to jeopardize modest growth in the year ahead, and the market is taking great delight in that," said Ernie Ankrim, chief investment strategist for Russell Investment Group.

Interest rate-sensitive stocks like brokerages, banks and insurers rose, with shares of Citigroup, the world's largest financial services firm, gaining 1.6 per cent to end at US$49.29 on the New York Stock Exchange.

The Fed's rate-tightening cycle was one of several stiff headwinds that drove US stocks to a lackluster 2005, and investors have been watching for hints that it is nearly over.

Shares of American Express Co., a Dow component, rose 2.2 per cent to US$52.58, while Bank of America shares gained 2.02 per cent to end at US$47.08.

US crude rose US$2.10 to US$63.14 a barrel, a 2 1/2-month high. Exxon Mobil gained 4.1 per cent to US$58.47 on the NYSE.

But shares of Wal-Mart Stores Inc., another Dow component, bucked the positive trend, dropping 1.2 per cent to US$46.23 on the NYSE after the retailer provided a disappointing December sales outlook.

General Motors Corp., which slid 2.7 per cent to US$18.90, also featured among the day's biggest decliners. Banc of America Securities cut GM's share price target to US$13 from US$16.

Shares of CBS Corp. rose 2.4 per cent to US$26.10 as they debuted on the NYSE after media conglomerate Viacom Inc. split off its broadcast operation from its fast-growing cable division, now renamed Viacom Corp.

Volume was heavy, with about 1.92 billion shares changing hands on the NYSE, above last year's daily average of 1.61 billion. On Nasdaq, about 2.05 billion shares were traded.

About 12 shares rose on the NYSE for every four that fell, while on Nasdaq, gainers outnumbered decliners by about 3 to 2.

- REUTERS