For Stocks, So Far, So Good in 2002

Gains have been fueled by economic recovery hopes. On tap next week: initial reports on first-quarter profits and an eagerly-awaited AOL conference call

Overcoming some profit-taking, U.S. stocks held onto gains to finish higher on Friday, Jan. 4, for the third consecutive day after new economic data fueled hopes for an economic recovery in 2002.

The Labor Department said the unemployment rate rose to 5.8% in December from 5.6% in November. So while the U.S. job market weakened further in December amid layoffs, the pace of job losses did slow compared to the months immediately after the September 11 attacks.

The Labor Department also said the number of workers on U.S. payrolls outside the farm sector fell a seasonally adjusted 124,000 in December after a 371,000 drop (as revised) in November.

Also providing a lift was the release of the December ISM non-manufacturing index, a key gauge of conditions in the service sector. The index rose to 54.2 in December from 51.3 in November. S&P MMS says the numbers in the report are consistent with some bottoming in the economy.

Among Friday's stocks in the news, Enron (ENE ) said on Thursday it has agreed to allow its former merger partner Dynegy Inc. (DYN ) to exercise its option to buy the lucrative Northern Natural Gas unit. Enron gained 3%, while Dynegy added more than 5%.

Other active issues included coffee retailer Starbucks (SBUX ), which reported strengthening December sales. Starbucks was up 8%.

Plus, the nation's second-largest hospital operator Tenet HealthCare (THC ) said its fiscal second-quarter net income fell after charges, but operating profits rose a higher than expected 43% from increased admissions and fees. The company also said it expects earnings for the year ending in May to beat Wall Street's expectations by about 5%. Shares of Tenet HealthCare closed 3% higher.

In fact, overall earnings for the fourth quarter in 2001 and first quarter of 2002 may decline less than initially feared as cost-cutting measures take effect, says Subodh Kumar, chief investment strategist at CIBC World Markets. "The earnings bottom was probably in the third quarter [of 2001], although it might be a little weaker in the fourth quarter," Kumar added.

On Friday, the Dow Jones industrial average rose 87.60 points, or 0.86%, to 10,259.74. The tech-heavy Nasdaq composite index added 15.12 points, or 0.74%, to 2,059.39. The broader S&P index was up 6.45 points, or 0.55%, to 1,171.72.

Among the gainers were healthcare suppliers and air freight companies. The losers included office electronics, telecoms and oil-services giant Halliburton (HAL ), which denied speculation that it is contemplating bankruptcy amid new asbestos liabilities. Halliburton shed more than 6%.

Looking ahead, fourth-quarter earnings releases should begin to trickle in next week, including Dow component Alcoa (AA ).

Other events to watch include AOL Time Warner's (AOL ) conference call scheduled for Jan. 7. S&P analyst Scott Kessler notes there's some speculation the company will reduce 2002 guidance for revenue, EBITDA and cash EPS. Also, auto giant General Motors (GM ) is expected to make a presentation before securities analysts on Jan. 10.

The economic data calendar for next week is fairly light. The most closely-watched report will be the reading on December producer prices, expected Jan. 11. Headline producer prices are expected to continue falling, notes S&P MMS, while core prices are seen ticking up a subdued 0.1% on the month.

Also next week, reports on factory orders and consumer credit are set for release on Jan. 8 and weekly jobless claims and wholesale inventories updates are due on Jan. 10.

Treasury Market

U.S. Treasuries ended lower, as equities held their ground. S&P MMS notes that the jobs report and ISM non-manufacturing numbers added further pressure to Treasuries.

World Markets

European markets ended with gains. In London, the Financial Times-Stock Exchange 100 index was up 5 points, or 0.09%, to 5,323.80. In France, the CAC 40 added 1.59 points, or 0.03%, to 4,682.79. In Germany, the DAX Index was up 29.14 points, or 0.55%, to 5,299.43.

In Asia, the markets surged higher following Thursday's gains on Wall Street. The Nikkei added 328.87 points, or 3.12%, to 10,871.49, led by tech shares. In Hong Kong, the market added 278.63 points, or 2.44%, to 11,702.15.

By Heesun Wee in New York

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