Wall Street Cheers Rate Cut

The Federal Reserve's move to cut key short-term interest rates Thursday afternoon took Wall Street by surprise, sending U.S. stocks into orbit.

"It's a big surprise," said Robert Brusca, an economist at Nikko Securities. "They did this for liquidity reasons, not so much for growth. But it's having a massive impact in the market."

The Dow Jones Industrial Average soared 331.35 points, or 4.2 percent, to 8,300.13. It was the third-largest point gain ever for the index and the first close above 8,300 since Aug. 26.

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It is unusual for the central bank to make a rate move between meetings of its policy-setting Federal Open Market Committee. The last time it did so was in April 1994. But over the past week, speculation had become rampant that the Fed might cut rates in advance of its next policy meeting Nov. 17. In part, this contributed to the rally in U.S. stocks since Oct. 8's low.

The Federal Reserve's quarter-point rate cut cheered the bond market, with the benchmark 30-year Treasury advancing 28/32, to yield 4.947 percent.

"Our take is that it's a sign from the Fed that the hedge fund situation may not be over," said George Simon, bond market analyst with A.G. Edwards in St. Louis.

Earlier Thursday, stocks rallied before the Fed's announcement, with the Dow up 93.78 points just before the news as investors saw little in the way of depressing news among the latest batch of corporate earnings reports.

In Thursday's market indicators:

• The Standard & Poor's 500 Index shot up 4.2 percent.
• New York Stock Exchange winners pounded losers by over 3.5 to 1.
• On the Big Board floor, turnover jumped 17 percent to 928 million shares.
• he Nasdaq Composite soared 4.5 percent. Advancing issues led decliners by more than 2 to 1 in the Nasdaq Stock Market. Volume totaled 830 million shares.
• The Russell 2000 Index of small-company stocks gained 3.0 percent.

• Integrated oil & gas concern Kerr-McGee (KMG) slumped 4 3/16 to 42 3/4. It will buy oil & gas explorer Oryx Energy (ORX) in a $1.83 billion stock swap. Shares of the latter climbed 3 5/16, or 29 percent, to 14 13/16.
• Coca-Cola (KO) matched the estimates of most Wall Street analysts when it reported third-quarter operating net of 35 cents a share. It earned 35 cents a share on an operating basis in the year-ago period. Shares rose 3 3/16 to 67 9/16.
• Personal care and household products manufacturer Colgate-Palmolive (CL) advanced 4 1/4 to 81. It netted 66 cents a share, the same as Wall Street had expected, up from the 58 cents it realized in the same quarter of 1997. Sales dipped 1 percent. The company reported strong domestic and Latin American business.
• Unisys (UIS) edged most estimates by a penny with its third-quarter earnings of 26 cents a share, double the year-ago figure. Revenues rose 10 percent. Morgan Stanley Dean Witter improved its opinion of Unisys shares to "strong buy" from "outperform." The stock tacked on 1 13/16 to 24 5/16.
• Georgia-Pacific (GP) earned 43 cents a share in the third quarter, 2 cents below what it recorded in the same quarter of last year. The Street had expected as much. The forest products producer, citing ongoing softness in the global economy, declining exports, and higher imports, said it will likely post an operating loss in the fourth quarter. The shares climbed 2 1/8 to 51 5/8.
• BankBoston (BKB) rose 3 3/8 to 35 3/16. It said core profits amounted to 66 cents a share, 7 cents below the year-ago level. The number was a penny better than consensus expectations. It attributed the 14 percent drop in core net income to trading losses in emerging markets.
• Polaroid (PRD) skidded 3 1/16 to 19 7/16 after disappointing Wall Street with its third-quarter profits report. It logged a profit of 40 cents a share on an operating basis, 7 cents shy of most forecasts, on a 13 percent fall in sales. A year ago, earnings amounted to 55 cents. Weak foreign markets hampered results.
• Dow component AlliedSignal (ALD) added 11/16 to 37 1/8. The industrial concern logged earnings of 58 cents a share in the third quarter, equaling most estimates and beating the year-ago number by 16 percent. The company reported robust sales in its aerospace systems division.
• Electronics For Imaging (EFII) ran up 4 5/16, or 24 percent, to 22 3/8. It trounced the Street's consensus earnings estimate by 8 cents with its third-quarter figure of 31 cents a share. Prudential Securities, BancBoston Robertson Stephens, and Lehman Brothers upped their earnings forecasts for EFI, which designs producs that enable high-quality color printing in short production runs.
• Computer hardware manufacturer Hewlett-Packard (HWP) firmed 2 5/16 to 52 1/16. Late Wednesday, the company's chief executive, speaking at a Florida technology conference, said he looks for revenues to grow in the mid-teens over the long term. But he admitted hardware sales should substantially slow in 1999's second half.
• Sun Microsystems (SUNW) put on 2 to 48 13/16. It reported fiscal first-quarter earnings of 50 cents a share, beating most forecasts by a penny.