Stocks Gain After Fed Decision

NEW YORK – Stocks pared early losses and rose Wednesday after the Federal Reserve's widely expected decision to stand pat on interest rates soothed a market left jittery following President Bush's State of the Union address.

The blue-chip Dow Jones Industrial average closed up 21.87 points, or 0.27 percent, to 8,110.71, having first fallen after the Fed decision. The Standard & Poor's 500 index gained 5.83 points, or 0.68 percent, to 864.37. The tech-loaded Nasdaq Composite added 15.93 points, or 1.19 percent, to 1,358.11. Recent declines had taken the indexes to their lowest level since October.

Fed policymakers kept rates at four-decade lows while they awaited the economic impact of a possible war with Iraq and big tax cuts. They said the muted pace of economic activity may perk up as some of this uncertainty eases, especially with interest rates as low as they now are.

"We've closed lower for about seven out of nine sessions and we were due for something like this bounce," said Robert Basel, senior trader at Salomon Smith Barney Inc. "On the surface of it, they (Fed policymakers) did not say anything that's terribly negative or that is not known already."

Technology shares were led higher by semiconductor companies after Wall Street powerhouse Merrill Lynch warmed up to Novellus Systems Inc. (NVLS), a leading maker of equipment used to produce computer chips. Drug makers such as Merck & Co. rose amid hopes that reform of the Medicare program, as Bush wants, will boost demand for prescription medicines.

Big movers included Rambus Inc. (RMBS), whose stock soared on Nasdaq after a federal appeals court dismissed Infineon Technologies' AG (IFX) fraud claim against Rambus and breathed new life into the latter's claim that Infineon infringed its patents.

Rambus jumped 57 percent, or $4.25, to $11.69 and Infineon lost 12 cents to $7.18, or 1.6 percent.

Despite the market advance, pundits sounded a cautious note about its sustainability after recent selloffs and snapbacks.

"No one is really making any sort of bet that lasts beyond a couple of days," said Brian Pears, head of trading at Victory Capital.

Jeffrey Saut, chief investment strategist at Raymond James, said he believed the market will continue to churn sideways.

"We were oversold, and we were due for a throw-back rally, which is like a dead-cat bounce," said Saut. "The gun was cocked, we were down more than 900 points" from the top of a recent rally in mid-January.

The Fed said risks to the economy remained evenly balanced between higher prices and a renewed downturn, a stance adopted in November, and to some market watchers this meant that the economy may not be weakening further.

Earlier, stocks shed losses and moved into positive ground as investors looked for bargains in a market that had declined following the State of the Union speech Tuesday night by Bush which fed fears that war against Iraq was close.

"I think the market was a little overdone," said Todd Leone, head of listed trading at S.G. Cowen. "Everybody came in and said we are going to war, but then people said this is pretty much what we have been hearing in the past.

"There are some bargain hunters coming in and saying this has been pretty much been discounted."

Merck & Co. (MRK), a Dow issue, rose 99 cents to $55.39 and Pfizer Inc. (PFE), gained 55 cents to $30.55. Bush, in his speech, announced a $400 billion drive to reform Medicare and add a prescription drug benefit to the government program that provides health coverage to elderly Americans.

Oil stocks emerged as a bright spot during the session as oil prices rose nearly $1 a barrel on the threat of war. Dow issue Exxon Mobil Corp. (XOM) jumped $1.19 to $33.85. BP Plc tacked on $1.81 to $38.30.

Novellus (NVLS) rose $2.05 to $31.58, or 6.9 percent, after Merrill Lynch raised the company's investment rating to "buy" from "neutral" to reflect its improving outlook and attractive valuation given a recent pullback in the stock price.

The Philadelphia semiconductor index moved up 3 percent, reflecting gains in the likes of KLA Tencor , up $1.18 to $35.85.

Kraft Foods Inc.(KFT), the maker of Oscar Mayer meats and Velveeta cheese spread, sank $4.91 to $31.20. The company said quarterly earnings jumped 70 percent on lower costs but warned that 2003 profits would be below expectations due to problems in Latin America and higher benefit costs.

Altria Group Inc. (MO), which has just changed its name from Philip Morris Cos. Inc., slumped $1.35 to $37.03. The company, which owns the majority of Kraft Foods, said profits plunged 18 percent as it spent more to promote its cigarettes.

Verizon Communications Inc. (VZ) jumped $1.60 to $37.65. The No. 1 U.S. telephone company posted a fourth-quarter profit as strong wireless sales offset a loss of local telephone lines, but it forecast little or no revenue growth for 2003.

Sprint Corp. (FON) Chairman William Esrey, who was diagnosed with cancer of the lymphatic system in November, will step down, according to a report on cable television news channel CNBC. Sprint lost $1.17 to $11.98, or 9 percent, and shares of Sprint PCS sank 23 cents to $3.50, or 6 percent.

The Russell 2000 index, which tracks smaller company stocks, rose 1.67, or 0.5 percent, to 374.84.

Overseas, Japan's Nikkei stock average finished Wednesday down 2.3 percent. In Europe, France's CAC-40 rose 1.4 percent, Britain's FTSE 100 fell 0.2 percent and Germany's DAX index gained 1.3 percent.

Reuters and the Associated Press contributed to this report.