Stocks Finish Higher Despite Terror Warnings

Analysts expect a light-volume session Wednesday as market players may sit on the sidelines

Stocks finished with gains Tuesday on light volume as investors weighed news that U.S. government officials raised the alert level for a terrorist attack as the first anniversary of the September 11 attacks approaches.

Wall Street has been fretting for weeks that the one-year anniversary of the September 11 would bring another strike. The threat level of an attack had been at "yellow," but was upped Tuesday to "orange," which signifies a "high risk of terrorist attacks". The "orange" designation is just one level below "red," which is the highest level of alert. A number of U.S. embassies in Southeast Asia have been closed.

Equities initially reacted to the news with selling, but they managed to finish on an upbeat note. The Dow Jones industrial average added 83.23 points, or 0.98%, to 8,602.61. The Nasdaq composite index gained 15.49 points, or 1.19%, to 1,320.09. And the broader Standard & Poor's 500-stock index climbed 6.62 points, or 0.73%, to 909.58.

Investors will have a shortened day of trading Wednesday. The stock market will not open until 11 a.m. ET. The Treasury market will open at its normal time but close early at 2 p.m. ET.

"It'll probably look something like the end of August," says Alan Hoffman, senior portfolio manager at Value Line Asset Management. He notes that the Fed will release data from its anecdotal report from regional branches of the central bank. However, the so-called Beige Book will be the only economic development of note. Typically, the report does not move markets. "Market attentions will be elsewhere."

Getting through September 11 without any significant incidents of terrorism "will constitute [getting past] some kind of hurdle, given the fact that economic underpinnings have been okay, if not splendid. And given the level of inflation and interest rates we could start to see some real buying interest," Hoffman says.

John Davidson, CEO of PartnerRe Asset Management also expects a quiet session. "I think we may have some firms taking the day off in honor of the anniversary. If the market screams in one direction up or down it will be tough to get on board." Davidson also sees some relief after the 11th. "The concerns are not just with the anniversary but also of whether and how this war extends to Iraq."

Uncertainty over a possible war with Iraq has also been a point of unease for investors. President Bush will address the U.N. Thursday and administration members have hinted that he will urge the U.N. to approve military action against Iraq. The Bush administration for the past several weeks has been building a case to put a lid on Saddam Hussein's alleged efforts to develop nuclear weapons.

In technology news Tuesday, cellular phone maker Nokia (NOK ) said in its third-quarter progress report that its handset market share was stable in the third quarter but prices of its phones had increased compared with the second quarter.

Biotech giant Genentech (DNA ) led stocks in the sector lower after it reported that results from a Phase III study of its Avastin product in metastatic breast cancer patients was not effective. The company says it still plans to test the drug in colorectal cancer. But investors reacted by bidding the shares down sharply. Solomon Smith Barney reduced its price target on the stock to $28 from $40.

Auto maker Ford (F ) said that it will make a profit in the third quarter instead of the loss that it had expected earlier. The company is nine months into a multiyear turnaround plan after a massive $5.45 billion loss last year.

Food company H.J. Heinz (HNZ ) reported lower quarterly earnings on higher marketing and other costs as it focuses mainly on its ketchup and sauce business.

Treasury Market

U.S. Treasuries gained in price Tuesday as investors worried over the increase in level of potential terror attack on the U.S. A successful sale of a five-day cash management bills also helped prices. No major economic data are due until the end of the week.

U.S. chain store sales increased 0.1% in the week ended Sept. 7 after a 0.5% last week as the Labor Day holiday drove traffic in stores, according to a report from the Bank of Tokyo-Mitsubishi and UBS Warburg.

The market will be watching closely two speeches later in the week. President Bush will address the U.N. Thursday and will likely address the Iraq issue. Also, Federal Reserve Chairman Alan Greenspan will speak before the House Budget Committee Thursday. Investors will be searching his words for an indication of whether the central bank is considering another rate cut to help spur the struggling economic recovery.

World Markets

European stocks finished up on the heels of a surprise rally from U.S. markets late Monday. London's Financial Times Stock exchange index finished up by 113.10 points, or 2.78%, to 4,175.50. Germany's DAX index gained 65.47 points, or 1.91%, to 3,494.69. France's CAC index closed up 99.82 points, or 3.12%, to 3,299.64.

Asian stocks ended higher. Tokyo's benchmark Nikkei 225 index edged up 3.05 points, or 0.03%, to 9,309.31. In Hong Kong, the Hang Seng Index gained 162.10 points, or 1.67%, to 9,885.77.

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