msnbc.com news services
updated 3/31/2005 8:29:04 AM ET 2005-03-31T13:29:04

Wall Street chalked up its biggest one-day rally in nearly four months Wednesday as investors, heartened by a moderate decline in oil prices and data showing modest economic growth, snapped up stocks in a heavily sold-off market.

Major Market Indices

Fourth-quarter gross domestic product (GDP) grew at an annual rate of 3.8 percent according to the Commerce Department, less than the 4 percent economists forecast. The data, released before Wednesday’s opening bell, gave investors some hope that a more moderate pace of economic growth would keep inflation in check and forestall faster interest rate hikes.

“Normally, you wouldn’t see this GDP report as a good thing, but with inflation out there, a little bit less growth is viewed as a positive,” explained Larry Peruzzi, senior equity trader at The Boston Company Asset Management.

Also boosting the market Wednesday was a drop in crude oil prices, which tempered Wall Street’s lingering worries about rising energy costs, and the technology sector was boosted by semiconductor maker Micron Technology’s upbeat profit report. Market observers also said stocks were due for a rally, having retreated steadily since early March.

“The market was oversold,” Raymond James’ Chief Investment Strategist Jeffrey Saut told CNBC. “It’s like pushing on a spring; you get a bounce back. The question now is whether this is a reflex rally, or the beginning of a major bounce back.”

Oil prices moved lower mid-morning after the Energy Department reported a 5.4 billion barrel increase to the nation’s crude oil reserves. Light, sweet crude futures settled at $53.99 per barrel on the New York Mercantile Exchange, down 24 cents.

“Today’s [stock market] rally really started when the latest oil inventory data were reported,” said David Chalupnik, head of equities at Minneapolis-based U.S. Bancorp Asset Management. “What’s interesting is crude oil closed well above its lows for the day, but the stock market’s rally continued,” he told CNBC.

The Dow Jones industrial average finished Wednesday up 135.23 points, or 1.3 percent, while the broader Standard & Poor’s 500-stock index was up 16.05 points, or 1.4 percent. Both indexes saw their biggest one-day point gain since Dec. 1.

The Nasdaq composite index finished the day up 31.79 points, or 1.6 percent, after falling to a five-month low on Tuesday. The technology-rich index closed above the psychologically-important 2,000 mark for the first time since March 21.

Investors were looking ahead to a pair of economic reports Friday — the Labor Department’s March employment figures and the Institute for Supply Management’s monthly report on the industrial sector. Economic data, particularly employment data, has been closely watched as the Federal Reserve plots its rate-tightening policy, and Wall Street is eager to know whether the next hike will be a 0.25 percentage point move like all the others, or a more aggressive half-point rise.

“It’s hard to see a sustainable advance with the precarious nature of interest rates here and how they’re moving higher. Who’s to say when that stops?” asked Steven Goldman, chief market strategist with Weeden & Co. in Greenwich, Conn. “Until we get a handle on what’s going on with rates it’s difficult to know what’s next, and that puts a bit of a lid on stocks.”

Qwest Communications International’s stock price fell 0.5 percent to $3.77 after a Goldman Sachs analyst said the company would likely continue to pursue a merger with MCI, which agreed to a $7.6 billion takeover by Dow industrials member Verizon Communications. MCI’s share price rose 1.5 percent to $24.13, while Verizon’s share price advanced 1.6 percent to $35.43.

Morgan Stanley’s shares climbed 3.1 percent to $55.28 after the company said three more executives would leave the brokerage house following a management shakeup. Dissident shareholders and former executives have increased calls for Chief Executive Philip Purcell to resign, saying the departure of other executives won’t be enough to right the company.

Shares of Dow component The Walt Disney rose 1.6 percent to $28.35 a day after the company officially parted ways with Miramax chiefs Bob and Harvey Weinstein. Disney will retain the Miramax name and film library, and the Weinstein brothers will take the Dimension label and its catalog as the core of a new venture-funded studio.

American International Group’s share price fell 1.8 percent to $57.16 after the company said it will delay filing its annual report. The embattled insurer said it discovered improper documentation for a controversial transaction with a Berkshire Hathaway unit at the center of state and federal investigations.

Overseas, Japan’s Nikkei average fell 0.3 percent. In Europe, France’s CAC-40 dropped 0.4 percent, Britain’s FTSE 100 shed 0.4 percent and Germany’s DAX index lost 0.1 percent.

Reuters and the Associated Press contributed to this report.

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