The New York Times-20080129-U-S- Markets Rally After Sell-Off Abroad

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U.S. Markets Rally After Sell-Off Abroad

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An early tumble gave way to a rally on Wall Street on Monday, as investors shrugged off heavy losses in the Asian markets and sent stocks steadily up in the afternoon.

The Dow Jones industrials closed up 176 points and the broader Standard & Poor's 500-stock index gained almost 1.8 percent, led by a strong recovery among beaten-down financial stocks. Shares of JPMorgan Chase and Bank of America were up by more than 4 percent.

Investors were placing bets ahead of a two-day meeting of the Federal Reserve, which begins Tuesday. Market watchers expect the central bank to cut interest rates, but there is some debate over how much.

Futures markets are showing a higher probability that central bankers will cut its benchmark lending rate by half a percentage point, but market watchers have not ruled out the possibility of a quarter-point cut.

Anticipation of a rate cut may have played a role in Monday's market gains.

It's the undoing of Friday's decline, said Sam Stovall, a strategist at Standard & Poor's, referring to the 170-point drop in the Dow that capped off last week. People sold off on Friday thinking the Fed would not cut rates as much as people hoped.

Rate cuts tend to cheer investors, especially financial firms that hope a cut will make it easier to lend and receive money. But Mr. Stovall cautioned that it's a little too early to tell how the Fed will act.

Still, the expectation of a cut helped American markets brush off steep losses in Asian stocks amid lingering worries about banking sector debts and a slowdown in the United States economy. There is still fear in the market about write-downs from financial institutions, said Chicuong Dang, an analyst at Richelieu Finance in Paris. The sell-off in Asia is evidence that the fear is everywhere.

European stocks initially slid as well, as shares of Societe Generale dropped almost 4 percent. Societe Generale bank found itself in unwanted headlines last week after revelations of trading fraud, and analysts at Citigroup downgraded their rating on the share to sell from buy.

Stocks slipped less than 1 percent at the opening on Wall Street, shaken in part by a rocky start for McDonald's, which fell more than 5 percent after it said sales at its American hamburger stores were flat in December. A grim report on new-home sales in December, which fell to their slowest pace in 13 years, shook investors' confidence as well; the Dow fell sharply moments after the report's release at 10 a.m.

Even so, stocks recovered within the first hour and went on to enjoy a generally positive afternoon session. The Dow closed up 176.72 points, or 1.5 percent, at 12,383.89. The technology-heavy Nasdaq composite index gained 1 percent, and the S.& P. rallied by 1.8 percent, or 23.35 points, to finish at 1,353.96.

The gains were a contrast to the market upheaval that began the week in Asia. In Tokyo, the Nikkei 225 stock average fell 4 percent on Monday. The decline took the Japanese benchmark index down more than 14 percent for the month of January.

The Hang Seng index fell 4.3 percent. The Hong Kong benchmark has been among the most volatile of the world's major indexes in recent weeks, gaining as much as 11 percent in one day and losing as much as 8.7 percent on another.

Mainland Chinese stocks were also weaker, with the CSI 300 index falling 7 percent.

Investors also adopted a more cautious view of the Federal Reserve's intentions. The Fed was expected to follow up last week's 3/4-point rate cut with another cut Wednesday.

Government bond prices declined as stocks jumped. The price of the benchmark 10-year Treasury note fell 5/32 to 105 16/32. Its yield, which moves opposite its price, rose to 3.58 percent, from 3.56 percent.

Following are the results of Monday's two-year Treasury notes and three- and six-month notes:

[Illustration]GRAPHS: THE DOW MINUTE-BY-MINUTE: Position of the Dow Jones industrial average at 1-minute intervals yesterday.(Sources: Associated Press; Bloomberg Financial Markets); 3-MONTH TREASURY BILLS: High rate at weekly auction. (Source: The Bond Buyer); TWO-YEAR TREASURY NOTES: High yields in percent. (Source: Treasury Department) Graphs showing the current position of the U.S. market.