Stocks Rally Ahead of Fed, Cisco News

Hopes for a rate cut from Greenspan & Co. on Tuesday lifted sentiment. Cisco announced better-than-expected earnings after the bell

U.S. stocks rallied on Monday on some favorable corporate news and expectations that Federal Reserve policy-setters will again take interest rates down sharply at their meeting on Tuesday.

If the Fed cuts interest rates on Tuesday as expected, it would represent the tenth time this year its Federal Open Market Committee members have eased borrowing costs to stimulate the ecomomy. Standard & Poor's economic research unit MMS said it expects a substantial half percentage point reduction at the conclusion of the Nov. 6 FOMC meeting.

Lower borrowing costs can encourage businesses as well as consumers to increase spending.

The tech sector posted particularly strong gains with the Nasdaq up nearly 3%. Investors were hoping that Cisco Systems Inc. (CSCO ), the world's largest maker of networking equipment, would announce in its first quarter earnings updatethat it sees sales improving in the future.

After the close of trading Monday, Cisco announced pro forma earnings per share of $0.04 (excluding various charges), which came in ahead of the Wall Street consensus estimate of $0.02. Revenue topped analysts' expectations at $4.2 billion. Investors hoped to find out more about the company's prospects in a conference call later on Monday.

Among other stocks in the news Monday, troubled energy merchant Enron Corp. (ENE ) could be the target of a takeover bid by Royal Dutch/Shell Group, according to press reports.

Utility company PG&E Corp. (PCG ) advanced after saying its third-quarter net income more than tripled.

Medical equipment maker Baxter International (BAX ), however, was falling after saying that it stopped making two models of blood filters because they may have contributed to the deaths of two kidney patients in Europe.

Yet another grim piece of economic news was released Monday. A key barometer of business activity in services and other sectors declined sharply in October after the terrorist attacks on New York and Washington. The National Association of Purchasing Managers' non-manufacturing index fell to 40.6 in Oct from 50.2 in September. Any number below 50 represents a contraction. The index was well below its six-month average of 47.3 with weakness widespread, particularly in the communication, wholesale trade, agriculture, transportation and construction sectors.

Standard & Poor's MMS said the data bolstered the case for a half percentage point cut in interest rates by the Fed rather than a more mild quarter of a percentage point reduction.

The Dow Jones industrial average ended higher by 117.49 points, or 1.26%, to 9,441.03. The tech-heavy Nasdaq composite index strengthened by 47.92 points, or 2.74%, to 1,793.65. The broader S&P 500 index gained 15.64 points, or 1.44%, to 1,102.84.

Treasury Market

Treasuries were higher despite strength in stocks. The bond market was lifted in expectations the Fed will again cut rates sharply on Tuesday. The 30-year bond was outperforming in the wake of another spate of gloomy economic data after last week's severe correction.

World Markets

European stocks closed higher. In London, the FTSE 100 index gained 79.60 points, or 1.55%, to 5,209.10 despite reports that UK Industrial Production fell 1.2% in September. Inflation, however, remained under control.

The Paris CAC 40 index advanced 115.94 points, or 2.65%, to 4,485.34.

In Germany, the DAX index gained 171.80 points, or 3.75%, to 4,755.11 as the U.S. opened higher. Also, many traders are hopeful that the European Central Bank will cut interest rates this week amid published reports German unemployment is likely to increase 20,000 in October.

Major Asian markets closed higher. Japan's Nikkei added 63.76 points or 0.61%, to 10,447.54. Gains were limited, though, by weakness in NTT DoCoMo, off 4.2% on reports that the company will take a 300 billion yen charge in for a valuation loss on its 15% stake in Dutch mobile phone operator KPN Mobile NV.

In Hong Kong, the Hang Seng index jumped 244.66 points, or 2.40%, to 10,430.72.

Before it's here, it's on the Bloomberg Terminal.