US stocks: Shares may rise on economic strength

NEW YORK - Wall Street bulls are looking for the stock market to resume November's gains this week on continued signs of economic strength despite a slight setback for two of the major indexes.

The Dow industrials and Standard & Poor's 500 index snapped a five-week winning streak by Friday's close, while the Nasdaq notched its seventh straight week of gains.

But the three indexes finished November with the best monthly gains in four months and saw their best daily increases in a month on Thursday.

"I think there's still more upside ahead into (this) week, and as we look at the market beyond near term, I think the surprising strength in the economy is going to help us in the first half of 2006," said Barry Hyman, equity market strategist, Ehrenkrantz, King, Nussbaum.

For the week, the Dow Jones industrial average ended down 0.5 per cent, the Standard & Poor's 500 Index ended off 0.25 per cent and the technology-laced Nasdaq Composite Index closed up 0.46 per cent.

Thursday's big gains were partly tied to a report showing an inflation index closely watched by the Federal Reserve -- the core personal consumption expenditure index - rose just 0.1 per cent, only half the gain that Wall Street expected.

But Friday's robust jobs report revived fears interest rates will climb and helped to push the stock market down. The Fed has raised interest rates 12 consecutive times since June 30, 2004, pushing the fed funds rate to 4 per cent.

"The lack of follow-through buying (Friday) leaves at least the possibility for some consolidation" next week, said Chris Burba, market analyst at Standard & Poor's. "The broad consensus is for further gains in December, but a pull-back next week would actually be healthy in the context of the current uptrend."

Meanwhile, continued strength in technology and financial shares has been supporting the market, strategists said.

Analysts last week were optimistic that the world's largest chip maker, Intel Corp, may raise its profit forecast when it gives its midquarter update on Thursday after the market's close.

Other items for investors to watch are any reports from retailers on holiday sales and Friday's preliminary December consumer-sentiment numbers from the University of Michigan, forecast to show an increase from the prior month.

On balance, the news should be favorable for equities, and stocks should "have some continued improvement," said Michael Strauss, chief economist at Connecticut-based Commonfund, which manages about US$34 billion for nonprofit institutions.

Some positive reports on the economy are likely, he said. "The retail sales numbers are probably going to show some bounce-back."

Among companies expected to report financial results are retailer Sears Holdings Corp, supermarket operator Kroger Co. and discount retailer Costco Wholesale Corp.

Also, on Wednesday, The Coca Cola Co. is holding a discussion with investors and analysts.

High energy costs, which cut into consumer spending and corporate profits, remain a concern for investors, with a whole winter of heating bills still ahead.

US crude oil prices jumped on Friday as colder weather hit the US Northeast. January crude rose 85 cents to settle at US$59.32 per barrel on the New York Mercantile Exchange. The oil gains pushed down shares of energy-reliant industrial stocks.

"A rebound in energy (prices) could be one of the excuses for a mid-December trading peak (in stocks)," Hyman said.

- REUTERS