Stocks End Sharply Higher

Relief that a manufacturing report wasn't weaker than expected helped the major indexes rise by more than 2%

Stocks started off the fourth quarter with a flourish Wednesday as the major indexes posted strong gains. Investors were buying on relief that a manufacturing survey was better than some had feared following Tuesday's weak Chicago PMI report, says Standard & Poor's MarketScope.

The Dow Jones industrial average gained 194.14 points, or 2.09%, to 9,469.2. The broader Standard & Poor's 500 index was up 22.25 points, or 2.23%, to 1,018.22. The tech-heavy Nasdaq composite jumped 45.31 points, or 2.54%, to 1,832.25.

Though Wednesday's price action was bullish, trading volume was "just okay" according to Standard & Poor's market analyst Paul Cherney. The less than resounding volume might have been a by-product of investor hesitation ahead of the September employment report scheduled for release Friday, notes Cherney.

The strength in the major indexes came after ending the third quarter Tuesday on a down note after some weak economic data kept investors defensive. The Dow Jones Industrial Average rose 3.2% in the quarter that ended Tuesday, and was up 11% for the year through Sep. 30. The S&P 500 index gained 2.2% for the quarter and 13% for the year. Meanwhile, the Nasdaq rose 10.1% in the third quarter and 34% this year.

In economic releases due out Thursday, August factory orders are expected to drop 0.5%, while shipments are seen declining 1.6%.

MMS expects U.S. initial jobless claims to rise 14,000 to the 395,000 level in the week ended Sep. 27. "A rise in claims may offer modest support to Treasuries, but traders will be more focused Friday's key payrolls report," says MMS International.

In economic news Wednesday, the Institute for Supply Management index, a gauge of national manufacturing activity, slipped to 53.7 in September from 54.7 in August, and has been above the key 50 threshold for 15 of the last 21 months. Some in the market were looking for a little more erosion in the ISM figure, says economic research firm MMS International.

In the ISM survey, 13 out of the 20 industries reported growth on the month, although some anecdotal comments indicated softness and concerns about energy prices, says MMS. Nonetheless, it was encouraging that September's reading of 53.7 historically is consistent with GDP growth of 4%, notes MMS. "The most encouraging part of the report was the increase in new orders to 60.4 from 59.6, which marks the highest level of the year and bodes well for activity in the fourth quarter," says MMS.

Construction spending rose 0.2% in August to $882.7 billion. Residential spending increased 1.4%, while public spending gained 0.6%. The Commerce Department noted that the public and federal spending on construction was the highest on record.

Challenger reported fewer job cuts planned for September. The survey indicated that 76,506 cuts were announced in September, which is 3,419 fewer than the 79,925 announced in August. It was also the lowest monthly figure since May (68,623). "These data do little to ease concerns about the sluggish labor market, so traders will be more focused on the key ISM release," says MMS International.

The notion of continued economic growth was bolstered by 3M (MMM ) which affirmed guidance for double digit earnings growth in 2004. "Expectations for good third-quarter earnings reports keeps bulls in command," says Standard & Poor's MarketScope.

Homebuilders rallied as the recent drop in interest rates is positive for the group.

Among other stocks on the move Wednesday, Eli Lilly (LLY ) shares climbed after the FDA issued a second approvable letter for Cymbalta, a treatment for depression. The approval is contingent upon the resolution of manufacturing issues.

Sun Microsystems (SUNW ) shares fell after Moody's lowers senior unsecured debt ratings for the company to Baa3 from Baa1, reflecting Sun's continued decline in operating performance, profitability, and limited expectations of improvements in the near term.

Constellation Brands (STZ ) reported second-quarter earnings per share (GAAP) of 34 cents, vs. 53 cents a year ago, as restructuring and unusual charges offset a 32% net sales rise. The alcoholic beverages maker sees EPS of 65 cents to 69 cents in the third quarter and $1.89 to $2.19 for fiscal year 2004 (GAAP).

Vaxgen (VXGN ) was awarded a three-year $80.3 million contract from the National Institute of Allergy and Infectious Diseases for the advanced development of its anthrax vaccine candidate, rPA102.

In the latest news on mutual funds, Prudential Securities, a joint venture between Prudential Financial (PRU ) and Wachovia's (WB ) Wachovia Securities, asked a dozen stockbrokers and managers to resign in the wake of investigations of market timing of mutual funds, according to news reports.

Treasury Market

Treasuries overcame a mixed smattering of data and a stock market revival to dig out of an early hole, says MMS International. Much of the flow was at the front-end of the curve, which outperformed. The 10-year note closed slightly lower in price after paring losses, and felt little overall heat from the equity bounce, says MMS International

World Markets

European stock markets ended higher. London's Financial Times-Stock Exchange 100 index gained 77.9 points, or 1.9%, to 4,169.2. In Paris, the CAC 40 was up 56.02 points, or 1.1%, to 3,191.01. Germany's DAX index rose 73.05 points, or 2.24%, to 3,329.83.

Asian markets finished higher Wednesday. In Japan, the Nikkei 225 index gained 142.19 points, or 1.39%, to close at 10,361.24, led by soaring bank stocks. In Hong Kong, the market was closed for National Day.

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