Stocks Post Modest Gains

A fresh round of positive economic reports underpinned gains in a choppy trading session

Stocks finished with small gains Thursday is a session marked by choppy trading. Investor sentiment got a lift from a trio of positive economic reports, strength in the Nasdaq, and news that Iraq's former chief weapons minister, Ali Hassan al-Majid (known as "Chemical Ali") was captured.

The blue-chip Dow Jones industrial gained 26.17 points, or 0.28%, at 9,423.68. The broader Standard & Poor's 500 index was higher by 2.97 points, or 0.3% at 1,003.27. The tech-heavy Nasdaq composite index was higher by 17.01 points, or 0.97%, at 1,777.55. Semiconductors, wireless providers, and defense-related firms outperformed.

Major indexes continued a broad upwsing, bolstered by hopes of a pickup in the econony. "We're into the sixth month of this advance, which began April 11, and the whole premise has been 'here comes the economic recovery,'" says Larry Wachtel, a market analyst at Prudential Securities. "So when the economy is improving, the market responds."

The Philadelphia Fed index, a regional manufacturing survey, surged to 22.1 in August, up from 8.3 in July, well beyond expectations. "Both new orders and shipments revealed further gains, which solidifies the view that third quarter activity continues to accelerate," notes economic research outfit MMS International. The index for future activity six-months out rose to 62.0 from 56.9, the highest since February 1993.

In other economic news, jobless claims for the week ended Aug. 16, dropped 17,000 to 386,000, down from a revised 403,000 the prior week. The Bureau of Labor and Statistics says that there was little impact from the Aug. 14 blackout. Continuing claims rose 41,000, to 3.67 million, and "remains troublesome," says MMS. "This series has been holding around some of the highest levels seen in 20 years."

Leading indicators in July rose 0.4%, following an upwardly revised 0.3% gain in June. This is the fourth consecutive month that the index has been positive. "Half of the ten components made positive contributions, paced by the widening 10-year note to Federal funds interest rate spread, and followed closely by the gain in money supply," reports MMS.

In company news Thursday, Monsanto (MON ), Solutia (SOI ), and Pfizer's (PFE ) Pharmacia unit have agreed to a global settlement involving current, pending PCB litigation in Alabama. Monsanto will provide about $390 million in cash. Both Merrill Lynch and Banc of America upgraded Monsanto to buy. Monsanto shares gained more than 6%, and Solutia's stock price surged 344% to $4; Pfizer slipped 3%.

Shares in Goodyear Tire & Rubber (GT ) rose 4%, after a tentative deal with the United Steelworkers of America for a new, three-year master contract was announced.

Thursday brought some positive news on the corporate earnings front. Krispy Kreme Doughnuts (KKD ) posted improved second quarter earnings, on an 11% rise in same store sales, and a 41% total sales rise. The company said it expects fiscal 2004 earnings to exceed consensus estimates. Despite the optimistic report, Krispy Kreme shares lost almost 3% Thursday, on concerns that the stock is overvalued.

Longs Drug Stores (LDG )spiked 22% after reporting second quarter earnings of 14 cents per share (including charges) versus 29 cents, on a 1.9% drop in same store sales. The company set third quarter earnings goals between 11 cents and 14 cents. Sun Trust Robinson Humphrey upgraded the stock to equal-weight.

Tomorrow, investors anticipate a typically quiet Summer Friday session. No economic data is expected to be released, nor are any major corporate earnings reports expected. "Tomorrow will be a Friday in August, and next week is be before Labor Day [weekend], so who's really going to play?," asks Prudential's Wachtel.

Treasury Market

Treasuries were crushed Thursday and the yield curve flattened dramatically on stronger than expected data -- especially the surge in the Philly Fed index. The 5-year note was the big loser on the day. Its yield surged over 20 basis points intraday, piercing the 3.50% barrier before closing at 3.45%.

The combination of strong data and gains on Wall Street helped the dollar surge against most major currencies. The greenback dipped briefly below $1.09 versus the euro.

Gold was lower due to the big rally in the U.S. dollar.

World Markets

European markets were higher on Thursday. Companies with U.S. interests are again in the driver's seat, with optimism over the economy, reports MMS. A brokerage upgrade on the chip sector, as well as reports that Intel's CEO sees a turnaround in personal computer sales is adding to the mix. In London, the Financial Times-Stock Exchange 100 index ended up 6.1, or 0.14%, at 4,223.50.

In Paris, the CAC 40 finished higher by 26.08 points, or 0.80% at 3,306.42. Germany's DAX index finished 64.24 points higher, or 1.83% at 3,565.47, amid indications that U.S. equities would open higher. "Also, many feel that the euro slide to $1.10 will boost European exports and raise corporate earnings," reports MMS.

Asian markets finished mixed. Japan's Nikkei 225 index continues to push ahead, adding 0.69% to finish at 10,362.69. In Hong Kong, the Hang Seng index added 168.3 points, or 1.61%, to close at 10,643.63.

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