The Dow Jones industrial average soared to a new record as investors banished fears that the Federal Reserve will raise interest rates repeatedly in its bid to quell inflation.
In a broad-based, steady advance, the Dow rose 199.15 to close at 11,299.76, easily surpassing its July 16 record close of 11,209.84. The Dow is up 23 percent for the year.
Broader indicators also rose sharply, although they remain below their record highs of mid-July. The Standard & Poor's 500-stock index rose 23.61, to 1360.22, and the Nasdaq composite index rose rose 71.24, to 2719.57.
Today's rally occurred on light volume, as many traders were on vacation and many investors stayed on the sidelines, awaiting the Fed's announcement on interest rates Tuesday afternoon. Nonetheless, the rally lifted most sectors, with fledgling Internet companies, battered drug stocks and multinational consumer companies all rising.
Analysts said investors have grown comfortable with the expectation that the Fed will raise short-term interest rates Tuesday. Most economists expect the central bank to raise rates a quarter of a percentage point, matching the increase imposed on June 30.
Because higher interest rates can cut into corporate profits, stocks have faltered since the Fed first raised the possibility of a second rate increase. The market's recovery comes from the growing belief that the Fed may hold rates steady after Tuesday.
"Even though the Fed may raise rates tomorrow, there is some real evidence that the economy is slowing," said Hugh Johnson, chief investment officer at First Albany Corp. Johnson cited the nation's widening trade deficit and an expected slowdown in the growth of the U.S. gross domestic product.
Financial and technology companies benefited most from today's rally. J.P. Morgan soared 6-13/16, to 139 3/4, and American Express gained 3 1/2, to 146 3/8, pacing the Dow to its new heights.
Financial services companies are especially sensitive to interest-rate fluctuations. Higher rates make companies less likely to borrow money, cutting into lending volume and potentially slowing the pace of mergers and acquisitions.
Internet stocks buoyed the Nasdaq. Amazon.com rose 4-15/16, to 118 3/8, and Yahoo shot up 7 1/8, to 152 1/8. Many of those stocks had fallen as their high prices and often weak earnings drove investors in search of less-risky investments.
Merger activity enlivened trading. United Water Resources rose 2-7/16, to 33 1/2, after French utility Suez Lyonnaise des Eaux launched a $35-per-share bid to acquire full ownership of the company.
The bond market also provided strong support for stocks. The price of the Treasury's benchmark 30-year bond rose 31 cents per $1,000 invested, with its yield at 5.98 percent. The yield is down sharply from its recent high of 6.27 percent; at that level it provided investors with a more attractive alternative than volatile stocks.
While analysts were surprised by today's rally, many believe the market can extend its gains once the interest-rate question is put to rest.
"We're not seeing the kinds of conditions that lead to the end of a bull market," Johnson said.
CAPTION: New York Stock Exchange traders watch as the market rises yesterday.
CAPTION: DOW'S DAY (This chart was not available)