NEW YORK — NEW YORK -- U.S. stocks rose yesterday, recouping some of Monday's steep losses, after the Federal Reserve lowered interest rates for the first time since July. The move bolstered expectations that corporate profits will flourish next year.
The Dow Jones industrial average rose 34.68 to 5,109.89, recovering part of Monday's 101.52-point drop, after the Federal Open Market Committee cut the target for overnight loans between banks to 5.5 percent from 5.75 percent.
The same stocks that spearheaded Monday's retreat -- companies that make computer equipment and software -- led the advance. The Nasdaq composite index, filled with such technology stocks as Intel Corp. and Microsoft Corp., rallied 23.85 to 1,026.41, erasing almost all of Monday's 27.99-point drop. The 2.4 percent gain was the index's biggest since April 5, 1994.
Monday, stocks plunged on concern that the Fed would be reluctant to cut borrowing costs so long as Congress and President Clinton are split on how to balance the budget.
Investors greeted the Fed's move yesterday by driving up the price of banking shares and such cyclical issues as chemical and aluminum shares, which traditionally do best in a low interest-rate environment that helps spur general economic growth.
The Morgan Stanley index of 30 cyclical stocks rose 4.44, or 1.3 percent, to 337.51, led by gains in heavy equipment maker Caterpillar Inc., Aluminum Co. of America and metal company Phelps Dodge Corp.
Stocks got a boost from bonds, which posted their biggest rally in almost four months. The Fed's announcement sent the yield on the benchmark 30-year Treasury bond to 6.10 percent from 6.20 percent yesterday. Falling bond yields increase the attraction of the returns offered on stocks.
The Standard & Poor's 500 index climbed 5.12 to 611.93, recapturing more than half of Monday's 9.53-point drop. Shares of companies that make computers and related products benefited from expectations that earnings will increase as the Internet grows in popularity.
Shares of Intel rose $3.125 to $60.375; Microsoft spurted $3.875 to $90.875; Oracle Corp. gained $3.50 to $44.75; Hewlett-Packard Co. surged $6.625 to $83.875; Sun Microsystems Inc. rallied $7.50 to $48.625; Netscape Communications Corp. jumped $14.625 to $144.875; and Spyglass Inc. rocketed ahead $9.50 to $95.50.
Among broad market indexes, the Russell 2000 index of small capitalization stocks rose 2.28 to 306; the Wilshire 5,000 index, comprising stocks on the New York, American and Nasdaq stock exchanges, jumped 55.03 to 5,971; the Amex market value index rose 4.17 to 531.61; and the S&P; 400 mid-cap index rose 3.61 TO 211.84.
Yesterday's most active stocks in U.S. composite trading were Intel, Sun Microsystems, LM Ericsson's American Depositary Receipts, Hanson PLC'S ADRS and Micron Technology Inc.
More than 479 million shares traded on the New York Stock Exchange, exceeding the three-month daily average of 372.58. Declining stocks outpaced advancers by about 5-to-3 on the Big Board.
The Dow industrials set 69 records this year and the S&P; 500 notched 76 all-time highs amid optimism that the Fed would continue to lower interest rates following its quarter-point rate cut on July 6. Since the Fed's cut in July, the Dow industrials are up 10.7 percent and the S&P; 500 is up 11.8 percent.
The decision to lower interest rates allayed concern that the economy is slowing so much that corporate profit growth is drying up. Signs of weak profits came yesterday from home appliance maker Whirlpool Corp., which said fourth-quarter earnings will be "well below" analysts' estimates. The stock fell $1.125 to $53.125.
Also, PriceCostco Inc. posted fiscal first-quarter earnings of 25 cents, below analysts' expectations of 27 cents, sending its shares down $1.625 to $14.625.