updated 10/5/2006 8:19:47 AM ET 2006-10-05T12:19:47

Wall Street barreled higher Wednesday, propelling the Dow Jones industrials to their second straight record high close as investors shrugged off lackluster economic news and grew more optimistic that the Federal Reserve will lower interest rates as the economy cools.

Major Market Indices

The Dow, the stock market’s best known indicator, soared 123.27 to 11,850.61. It was only Tuesday that the 30 blue chip stocks finally reached a new closing high for the first time in nearly seven years.

The impetus for Wednesday’s big push higher was a growing feeling on Wall Street that the Fed might begin lowering rates soon. Investors appeared to take comfort from comments by Fed Chairman Ben Bernanke that the slowing housing market could be a drag on the economy, perhaps shaving 1 percent off of gross domestic product growth in the second half this year and into next year.

Brian Williamson, an equity trader at The Boston Company Asset Management, said Wall Street could also be taking its cues from economic reports. Two readings Wednesday, one on factory orders and the other on the service sector, pointed to a further slowing of the economy.

“Maybe the market is thinking that the economic data will put the Fed on hold,” he said.

The Dow’s record-setting day on Tuesday wiped out records that had stood since Jan. 14, 2000. The broader market indicators are still lagging as they try to recover from the turmoil that began with the dot-com bust early in the decade.

Those indexes rose sharply Wednesday along with the Dow, which had a gain of 1.05 percent. The average rose up to 11,851.25, which stands as its current trading high.

The Standard & Poor’s 500 index was up 16.11, or 1.21 percent, at 1,350.22 and the Nasdaq composite index rose 47.30, or 2.11 percent, to 2,290.95.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.56 percent from 4.62 percent late Tuesday. The dollar was down against other major currencies, while gold prices fell.

The government surprised Wall Street by reporting a rise in crude oil inventories, and investors were also heartened by news that Saudi Arabia said it wanted to keep prices lower. That brought crude down, though it rebounded and settled up 73 cents at $59.41 a barrel on the New York Mercantile exchange. Still, oil prices are down sharply from their trading high for the year of $78.40 a barrel, which came in July.

“It looks like the petroleum data shows that there is more than enough oil to go around. That’s good for inflation and for stocks,” said Kim Caughey, equity research analyst at Fort Pitt Capital Group.

Meanwhile, the Institute for Supply Management said growth in the nation’s service sector slowed in September from August, reflecting managers’ concerns about the economy, interest rates and security issues. And the Commerce Department said factory orders were weak again in August, coming in essentially unchanged.

Wall Street has been torn between concerns that the economy is slowing too much and anticipation that economic data like Wednesday’s reports will persuade the Fed to keep interest rates steady, or even lower them. The Fed has held off on raising short-term interest rates twice since it left them at 5.25 percent at its August meeting; prior to that, the central bank had raised rates 17 time since June 2004.

In corporate news, Wal-Mart Stores Inc. rose 9 cents to $49.55 after spending much of the day down. It said its September sales at stores open at least a year, a closely watched measure of retail performance known as same-store sales, rose 1.3 percent, not 1.8 percent as the company had forecast. The world’s largest retailer, which plans to release September sales figures Thursday, said it miscalculated when it issued its projection.

Biotechnology company ImClone Systems Inc. rose $2.16, or 7.95 percent, to $29.33 after saying an unidentified international pharmaceutical company was willing to make an all-stock offer of $36 per share for the company. ImClone also criticized financier Carl Icahn for rejecting the bid and advised shareholders to rebuff his efforts to wrest control of the company.

Automakers drew Wall Street’s attention as General Motors Corp., France’s Renault and Japan’s Nissan called off talks on forming an alliance after GM sought compensation for its participation. Earlier in the day, Bear Stearns cut its rating on Ford Motor Co. to “Peer Perform” from “Outperform” and upgraded rival GM to “Peer Perform” from “Underperform.” Ford rose 33 cents, or 4.01 percent, to $8.56, while GM, part of the Dow, was down 9 cents at $33.32.

TiVo Inc. fell 85 cents, or 11.3 percent, to $6.67 after the maker of digital video recording devices said an appellate court had given EchoStar Communications Corp. a reprieve in a patent fight between the companies.

Bally Total Fitness Holding Corp. rose 83 cents, or 49.7 percent, to $2.50 after the health club operator said it secured $280 million in loans to refinance existing debt and finance capital spending.

Advancing issues outnumbered decliners 3 to 1 on the New York Stock Exchange, where consolidated volume came to 2.99 billion shares, compared with 2.68 billion Tuesday.

The Russell 2000 index of smaller companies was up 15.12, or 2.1 percent, at 733.47.

Overseas, Japan’s Nikkei stock average closed down 0.98 percent. Britain’s FTSE 100 closed up 0.50 percent, Germany’s DAX index was up 0.90 percent, and France’s CAC-40 was up 0.70 percent.

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