Rate-cut speculation drives stocks upward

NEW YORK » U.S. stocks rose to the highest since July as investors speculated a drop in new home sales will give the Federal Reserve more reason to lower interest rates.

The Standard & Poor's 500 Index added 5.96, or 0.4 percent, to 1,531.38.

The Dow Jones Industrial Average rose 34.79, or 0.3 percent, to 13,912.94.

The Nasdaq Composite Index advanced 10.56, or 0.4 percent, to 2,709.59.

The Dow average climbed to within 0.7 percent of a record after the biggest plunge in new home prices in almost four decades spurred expectations policy makers will continue to lower borrowing costs to stem an economic slowdown.

The S&P 500 has rallied an average 15 percent during periods when the Fed was reducing interest rates, according to data going back to 1945 compiled by Bespoke Investment Group LLC.

"The Fed has done the right thing, the market has appreciated it and I think you'll see some more rate drops before the year is out," said Harry Clark, who oversees $1.3 billion as chief executive officer of Clark Capital Management in Philadelphia. "There's a lot of good values out there. The market's going to be very strong through the end of the year."

Equity indexes in Hong Kong, Singapore, Australia, India and Brazil climbed to records today and European shares rose on expectations that lower U.S. interest rates will stoke demand for exports to the world's largest economy.

U.S. Treasuries gained and the dollar traded near a record low against the euro.

The S&P 500 has gained 8.5 percent since the central bank cut its discount rate on Aug. 17 to revive investor confidence in credit markets.

On Sept. 18, the Fed lowered the benchmark federal funds rate by half a percentage point and said it will "act as needed" to sustain economic growth.

SLM Corp. posted its biggest advance in five months on expectations the largest U.S. student-loan company will negotiate a new takeover agreement. Exxon Mobil Corp. and Chevron Corp. climbed after crude oil prices increased for a second day. Morgan Stanley and Citigroup Inc. helped lead financial shares to their steepest gain since the Fed cut its benchmark rate on Sept. 18.

SLM, also know as Sallie Mae, rallied $4.11, or 9.1 percent, to $49.12. Friedman Billings Ramsey & Co. reiterated its "outperform" rating on the lender, saying it doesn't expect a buyout group led by J.C. Flowers & Co. to walk away from the takeover even after telling the company yesterday it was no longer willing to pay $60 a share. Sallie Mae led the S&P 500 Financials Index to a 0.8 percent gain.

Citigroup, the largest U.S. bank, added 33 cents to $46.88. Morgan Stanley, the second-largest securities firm, climbed $1.64 to $64.61.

Energy shares in the S&P 500 advanced 1 percent as a group. Exxon added 60 cents to $92.97. Chevron rose 95 cents to $93.46.

Crude oil for November delivery gained 3.2 percent to $82.88 a barrel in New York. Supplies in Cushing, Oklahoma, the delivery point for the U.S. benchmark grade, fell to the lowest in 21 months.