Stocks rally as service sector grows

A key nonmanufacturing index rises more than expected. The Bank of Japan lowers its benchmark interest rate to near zero. Goldman Sachs cuts BlackRock's rating.

By TheStreet Staff Oct 5, 2010 7:57AM

TheStreetBy Melinda Peer, TheStreet

 

Updated at 1:31 p.m. ET

 

U.S. stocks were climbing more than 1% after the Bank of Japan unexpectedly slashed its key interest rate and a new report showed the service sector is expanding.

 

At 1:31 p.m. ET, the Dow Jones Industrial Average ($INDU) was up by 178 points, or 1.7%, at 10,929. The S&P 500 ($INX) was up by 22 points, or 1.9%, at 1,159. The Nasdaq ($COMPX) was rising by 50 points, or 2.2%, to 2,395.

 

Confidence was building on Wall Street after the Institute for Supply Management's nonmanufacturing index rose to 53.2 last month, topping estimates for a reading of 51. August's level, the second lowest of the year, was 51.5.

 

"A lot in this report showed that there aren't many excesses in the economy. Reinforcing the idea that the recovery might push further is the pendulum is already swinging in that direction," said Marc Pado, a U.S. market strategist at Cantor Fitzgerald.

 

DuPont (DD) was the best-performing Dow stock, rising 2.5%, followed by Boeing (BA) and Caterpillar (CAT). American Express (AXP) was the index's biggest laggard, falling 3.2%, followed by Hewlett-Packard (HPQ) and Home Depot (HD).

 

Japan's central bank cut its benchmark interest rate to a range of zero to 0.1% and said it may create a fund of up to $60 billion to purchase government securities and other assets.

Pado said comments from Federal Reserve Chairman Ben Bernanke were also feeding the rally. Late Monday Bernanke suggested that the Fed may take steps to boost lending and spending.

 

Pado said concerns about Friday's jobs report are likely to linger, particularly with the private-sector employment report coming Wednesday and weekly jobless claims data due out on Thursday.

 

Japan's move, along with projections for continued U.S. job losses when the Labor Department releases its report on Friday, bolstered expectations that the U.S. Federal Reserve will institute new quantitative easing measures. That prediction was lifting gold prices to new highs and pressuring the U.S. dollar.

 

The December gold contract was soaring $14.50 to $1,331.83 an ounce, while the dollar was trading lower against a basket of currencies, with the dollar index down by 0.6%.

 

Yields on the two-year Treasury hit a record low Monday, falling to 0.40%. On Tuesday, the two-year was unchanged with a yield of 0.411%, while the benchmark 10-year Treasury note strengthened 3/32, diluting the yield to 2.470%.

 

In company news, BlackRock (BLK) shares were falling 1.2% to $168.83 after Goldman Sachs (GS) cut its rating on the stock to "neutral" from "buy." Fellow asset manager Affiliated Managers Group (AMG) had its rating increased to "buy" from "neutral," causing the stock to rise 4.6% to $82.72.

 

Shares of Mosaic (MOS) were falling 1.2% to $58.10 after third-quarter earnings of 67 cents a share missed analysts' estimates by 3 cents. Sales of $2.19 billion exceeded expectations for revenue of $1.96 billion.

 

Shares of Talbots (TLB) were sinking 13% to $10.98 on news that the women's retailer plans to close up to 100 stores over the next three years to concentrate on its outlet business.

 

Walgreen (WAG) posted a 0.4% increase in same-store sales, surprising Wall Street, which had projected a drop of 1.1%. The stock was rising 2.7% to $34.

 

American International Group (AIG) could increase the size of the initial public offering for its Asian unit to as much as $20.5 billion, according to the Financial Times. AIG shares were up 0.6% to $39.50.

 

In European news, former Societe Generale trader Jerome Kerviel was found guilty on all counts for his role in a trading scandal that cost the bank $6.7 billion. He was sentenced to three years in prison and must repay his former employer.

 

The American Petroleum Institute will issue its weekly read on crude oil inventories this afternoon. Analysts polled by Platts anticipate a decline of 1.3 million barrels in the week ended Oct. 1.

 

The November crude oil contract was adding $1.03 to trade at $82.50 a barrel.

 

The December gold contract, the most actively traded gold future, was climbing by $15 to $1,331.80 an ounce. The metal earlier hit a record of $1,333.80.

 

The FTSE in London was gaining 1.6%, and the DAX in Frankfurt was also ahead by 1.5%. Hong Kong's Hang Seng inched up 0.9%, while Japan's Nikkei jumped 1.5%.

 

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