US stocks: Drop in rates helps profit outlook

NEW YORK - US stocks rallied on Monday, with the Nasdaq up more than 1 per cent, as sliding interest rates improved the outlook for corporate profits.

A smaller-than-expected decline in August existing home sales and a drop in the price of oil to a six-month low also supported stocks.

Companies that benefit from lower borrowing costs and declining energy prices, such as blue-chips Caterpillar Inc. and General Electric Co., led the advance.

Earlier in the session, the benchmark 10-year US Treasury note's yield touched seven-month lows and crude prices fell to their lowest since March 8, before rebounding at the close.

"Further decline in oil prices has helped out and interest rates have certainly come down -- that is very helpful," said Lincoln Anderson, chief investment officer with LPL Financial Services, in Boston.

The Dow Jones industrial average rose 67.71 points, or 0.59 per cent, to end at 11,575.81. The Standard & Poor's 500 Index climbed 11.59 points, or 0.88 per cent, to finish at 1,326.37, its highest level in more than five years. The Nasdaq Composite Index jumped 30.14 points, or 1.36 per cent, to close at 2,249.07.

Caterpillar, the Dow's top gainer, shot up 2.5 per cent, or US$1.56, to US$64.33 on the New York Stock Exchange. General Electric, the No. 1 contributor to the S&P 500's advance, rose 1.4 per cent, or 49 cents, to US$34.89 on the NYSE.

POLISHING THE APPLE

On Nasdaq, Apple Computer Inc. rose 3.8 per cent, or US$2.75, to US$75.75 after ThinkEquity Partners LLC said on Monday that it raised its price target for the company's stock to US$100 from US$90 in anticipation of sales improvements.

Broadcom Inc. , another top gainer in the Nasdaq 100, jumped 9 per cent, or US$2.51, to US$30.36 after analysts at BMO Capital Markets raised their fourth-quarter earnings estimates on the chip maker.

"Rotation into technology shares and semiconductors is accelerating," said Larry Peruzzi, senior equity trader at The Boston Co. Asset Management.

HOME BUILDERS' SHARES RISE

The president of the Federal Reserve Bank of Dallas, Richard Fisher, captured Wall Street's attention when he said the US economy is doing well, but inflation is still a concern. Those remarks, made at a conference in Monterrey, Mexico, challenged the assumption that the US central bank will cut interest rates early next year.

The pace of existing home sales fell for a fifth straight month in August, according to a report from the National Association of Realtors, but the decline was not as pronounced as economists had expected.

The Dow Jones index of home builders' stocks climbed 3.5 per cent. Shares of KB Home, the fifth-largest US home builder, gained 3.1 per cent, or US$1.37, to US$45.62, while the stock of Countrywide Financial Corp. , the largest US mortgage lender, added 0.8 per cent, or 29 cents, to US$35.34.

The yield on the 10-year Treasury note, which moves inversely to its price, briefly dropped to 4.53 per cent, the lowest level since late February.

US crude oil for November delivery rose 90 cents to settle on Monday at US$61.45 a barrel on the New York Mercantile Exchange. But in overnight electronic trading, it slid to US$59.52, the lowest price since March 8.

H-P RISES, BUT ALTRIA FALLS

Also helping the Dow, shares of computer and printer maker Hewlett-Packard Co. gained 1.7 per cent, or 60 cents, to US$35.71, on the first trading session after the company's chairman resigned. On Friday, Chairman Patricia Dunn resigned under pressure over the methods that H-P used to investigate boardroom leaks to the media.

Shares of Time Warner Inc. rose 2.3 per cent, or 40 cents, to US$18.13 after several analysts raised their ratings on the company.

Meanwhile, shares of Altria dropped 6.4 per cent, or US$5.26, to US$77.06, while Reynolds American Inc. fell 3.7 per cent, or US$2.27, to US$59.75. A US federal judge gave class-action status on Monday to a lawsuit filed by "light" cigarette smokers who accused tobacco companies of fraud and are seeking damages of as much as US$200 billion.

Volume on the NYSE was heavy, where about 1.75 billion shares changed hands, above last year's daily average of 1.61 billion. On Nasdaq, about 1.90 billion shares traded, above last year's daily average of 1.80 billion.

Gainers outnumbered advancers on the NYSE by a ratio of more than 2 to 1, and on Nasdaq, by about 3 to 2.

- REUTERS