NEW YORK -- U.S. stocks rose yesterday as an unexpected drop in durable goods orders led to optimism the Federal Reserve won't raise interest rates again before the summer.
Stocks also advanced as investors anticipated companies will report stronger first-quarter earnings in April. Automobile and financial issues were among the issues posting the biggest gains.
"The issue of [further] Fed tightening is over, for at least a couple of months anyway," said Jim Benning, equity trader at BT Brokerage, a unit of Bankers Trust New York Corp. "Now people will start to look at first-quarter earnings. That's the next story coming down the pike."
The Fed raised the perceived target for the federal funds rate Tuesday to 3.5 percent from 3.25 percent, the second quarter-point increase in two months. The Fed funds rate is what banks charge each other for overnight loans.
The Dow Jones industrial average gained 6.91, to 3,869.46, after rising as high as 3,881.55, led by gains in Caterpillar Inc., which touched a 52-week high, International Paper Co. and General Motors Corp.
The Standard & Poor's 500 Index fell 0.27, to 468.53. The Nasdaq Combined Composite Index gained 1.17, to 797.51. Technology stocks such as Oracle Systems Corp., Microsoft Corp. and Lotus Development Corp. paced the advance after Oracle said earnings in the third quarter, which ended Feb. 28, topped forecasts.
Almost five stocks advanced for every four that declined on the New York Stock Exchange. Trading was moderate at 284.6 million shares.
"Investors think the Fed is doing the right things" to manage the economy, said Richard Ciardullo, chief trader at Eagle Asset Management in St. Petersburg, Fla. "The long-term outlook is that they're going to keep a lid on inflation, and that's good for everyone."
The Commerce Department said orders for big-ticket goods dropped 2.5 percent in February, the first decline in seven months, as aircraft and defense orders slumped. Economists had forecast durable goods orders would rise 0.5 percent last month.
"This number may reinforce the idea that another rate increase won't occur any time soon," said Alan Ackerman, executive vice president at Reich & Co.
Long-term interest rates initially dropped after the durable goods report suggested first-quarter economic growth will slow from the fourth-quarter rate of 7.5 percent.
The yield on the benchmark 30-year Treasury bond fell as low as 6.82 percent, down from 6.85 percent Tuesday, before closing at 6.88 percent.
The most active stocks in U.S. composite trading yesterday were Novell Inc., Merck & Co., Telefonos de Mexico American depositary receipts, Cisco Systems Inc. and Spectrum Information Technologies Inc.
Auto stocks climbed as Salomon Bros. repeated a "buy" on both Ford Motor Co. and Chrysler Corp. after management meetings.
Sales of cars, pickup trucks and minivans in March are likely to reach an annual rate of 16 million, the highest in more than six years, Salomon said.
Ford gained $1.75, to $63.375; Chrysler rallied 75 cents, to $58.125; and General Motors Corp. advanced 87.5 cents, to $60.50.
Financial stocks climbed amid reports that company executives were buying more of their own shares, and as confidence rose that rising interest rates won't get out of hand and curb earnings growth.
Travelers Inc. rose $1.50, to $38.375. Travelers and Metropolitan Life Insurance Co. said late Tuesday that they are in talks to combine their health-insurance businesses into a more cost-effective network.
American Express Co. rose 87.5 cents, to $30.75; Federal National Mortgage Association gained 25 cents, to $83.375; and Dean Witter Discover & Co. rose 75 cents, to $36.625.