updated 8/10/2005 7:13:22 AM ET 2005-08-10T11:13:22

Wall Street enjoyed a solid advance Tuesday after the Federal Reserve raised short-term interest rates for the 10th time in more than a year but changed its policy statement to say longer-term inflation expectations are well contained.

Major Market Indices

The market saw the Fed statement as a hoped-for sign that the central bank’s streak of rate hikes may be nearing its end.

Earlier, Wall Street rallied as crude oil futures fell on the New York Mercantile Exchange , pulling back from a record high of $64.27 a barrel Monday following the announcement of a two-day closure of the U.S. embassy in Saudi Arabia due to threats.

Stocks bumped higher for a short while after the Fed’s announcement , which came shortly after 2:15 p.m. ET, as investors had expected the rate hike to 3.5 percent, a four-year high. The Fed signaled that at least one more rate increase is coming, but many investors expect three more.

Investors also cheered Labor Department data showing work force productivity rose at a slower rate than it had in the first quarter . Labor costs also grew at a slower rate than the previous nine months. Analysts are looking for the economy to grow — but not too fast, because that might cause inflation and spark even more interest rate hikes than anticipated.

The Dow Jones industrial average finished Tuesday up 78.74 points, or 0.8 percent, while the broader Standard & Poor’s 500-stock index was higher by 8.25 points, or 0.7 percent. The Nasdaq composite index, full of technology stocks, was up 9.80 points, or 0.5 percent.

“We had three or four down sessions,” said Peter Martin, senior technical analyst, Prudential Equity Group. “We were due for a bounce. But when you look at the complexion, the volume, the advancers versus decliners, it’s a positive day, but it’s not a runaway day.”

The market has spent most of the year nearly flat, which suggests investors are worried about energy costs, consumer spending, housing and the economy, in addition to interest rates, said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia.

After strong second-quarter earnings and months of positive economic data, the market’s consensus is that the Fed’s rate hikes are justified. But, because of the other factors that could affect the economy, investors are split on whether the Fed’s hikes will be enough to contain inflation without causing a recession.

“While the market has priced in three more rate hikes after today, what it is less sure of is if the Fed will be successful, no matter how many rate hikes,” Kleintop said.

The market’s bounce may have just been a matter of timing, said Peter Martin, senior technical analyst at Prudential Equity Group. “We had three or four down sessions. We were due for a bounce. But when you look at the complexion, the volume, the advancers versus decliners, it’s a positive day, but it’s not a runaway day.”

In company news, May Department Stores Co. said its second-quarter profit fell by nearly half from the year before, hurt by expenses from its planned merger with rival Federated Department Stores Inc., the owner of Macy’s and Bloomingdale’s. The retailer’s profits missed analysts’ estimates by a wide margin. Its stock fell 13 cents to $40.07.

Cisco Systems Inc.’s fiscal fourth-quarter profits, reported after the close of trading, jumped nearly 12 percent as the leading network equipment maker continued to benefit from strong demand from its corporate customers. Excluding special items, the company met analysts’ expectations. Its shares closed up 36 cents to $19.61, then rose an additional 10 cents a share in extended trading, hitting $19.71.

Blockbuster Inc. fell 92 cents to $7.09 after the nation’s biggest movie-rental chain reported a second-quarter loss due to a revenue decline after it eliminated late fees. Adjusting for one-time items, the company missed analysts’ estimates by 10 cents a share.

Shares of Time Warner Inc. rose 57 cents to $18.54 following a CNBC report that financier Carl Icahn is attempting to organize an investor group, potentially to advocate for the break up of the media conglomerate. Icahn has contacted hedge funds, institutions, and former Time Warner executive Ted Turner to gauge their interest in joining such a group, according to the report.

Shares of Delta Air Lines Inc. slid 28 cents to $1.95 after Merrill Lynch downgraded its stock to “sell” , saying the latest jump in oil prices increases the chance the troubled airline will file for bankruptcy within two months.

Overseas, Japan’s Nikkei stock average rose 1.03 percent. In Europe, Britain’s FTSE 100 was up 0.36 percent, Germany’s DAX index was up 1.48 percent, and France’s CAC-40 was up 1.14 percent.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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