Dow Hits High on Dropping Interest Rates

Wall Street's obsession with interest rates outweighed worries about energy costs today, helping lift the stock market to new highs.

As the wholesale price of gasoline hit a five-month high, bond rates plunged in response to a forecast that the Federal Reserve will not push interest rates as high as most economists were expecting.

Often the bump in gas prices would be enough to knock down the stock market, but today traders were focused on rate relief, which gave many a justification for buying stocks.

The Dow Jones industrial average gained 75 points to 11,151.34. The Standard & Poor's 500 stock index climbed 13 points to 1,297.48. For both indexes, today's close was not only the high for the year, but the highest in almost five years.

Still lagging behind other measures of the market, the Nasdaq Stock Market composite index jumped almost 29 points to 2,295.90.

Today's gains were helped by a dramatic drop in interest rates that followed an encouraging forecast from Medley Global Advisors, a Washington firm that works for big investors.

Medley predicted the Fed will keep short term interest rates at 4.75 percent to 5 percent rather than boost them to the 5.25-5.5 percent range as many others are predicting.

Accurate or not, the forecast paved the way for the biggest drop so far this year in bond rates. The benchmark 10-year treasury bond's interest rate dropped 0.07 percent -- a lot for one day -- to 4.70 percent.

As bond rates fell, stocks rallied, ignoring an equally unusual jump in gasoline prices in the New York futures market. Gas to be delivered next month jumped almost 12 cents a gallon to $1.86 -- a wholesale price which does not include taxes.