US stocks up

Wall Street advanced for a second session in a row today as investors placed bets that the Federal Reserve would not indicate that it is leaning toward a US interest rate hike.

Market watchers are anticipating that the Fed will leave rates on hold tomorrow and say economic growth is cooling, while inflation remains a concern. The central bank has maintained this general stance for several months now, suggesting that rates are staying put.

Investors would ideally prefer a shift in posture toward cutting rates; such a move could boost consumer spending and make mortgages cheaper. But they appeared to be content to hear the status quo for now, and are tentatively optimistic that a rate hike is not in the offing given that recent economic data has shown slowing growth and that inflation, though high, has not been running rampant.

"What is likely is no change at all. We might get a little commentary on the housing market nationwide … but we don't think there's much action in the cards," said Jim Russell, director of core equity strategy for Fifth-Third Asset Management.

Worries over the flagging US housing market, particularly the subprime mortgage industry, have been dragging down US stocks over the past month. But investors got some reassurance today from a Commerce Department report that construction of new homes rose by 9% in February to a seasonally-adjusted annual rate of 1.525 million units, higher than the expected 1.450 million.

The data was not all positive - applications for building permits dropped - but not at all suggestive that the sector was collapsing.

Stocks were also boosted by a fresh slate of takeover activity, notably a $5.93bn (€4.45bn) offer to take Affiliated Computer Services Inc. private.

The Dow Jones industrial average rose 61.93, or 0.51%, to 12,288.10, after rising 115.76 on Monday.

Broader stock indicators gained as well. The Standard & Poor's 500 index advanced 8.88, or 0.63%, to 1,410.94, and the Nasdaq composite index added 13.80, or 0.58%, to 2,408.21.

Bonds also rose, as the Treasury markets shrugged off the housing data and an announcement from China that the country does not intend to build up its reserves. The yield on the benchmark 10-year Treasury note fell to 4.55% from 4.57% on Monday.

The Fed has kept rates on hold for five meetings following two years of gradual hikes.

Concerns about subprime lenders, who make loans to people with poor credit ratings, continue to dog the markets. People's Choice Financial Corp, which operates a subprime mortgage unit, filed today for Chapter 11 bankruptcy protection, and Fannie Mae said it would no longer allow New Century Financial Corp to sell mortgage loans to the US government-sponsored company.

A bright spot in the sector, however, was news that subprime mortgage lender Accredited Home Lenders Holding Co received a commitment for a $200m (€150m) term loan from Farallon Capital Management LLC, a San Francisco-based money manager.

Accredited Home rose $1.82, or 20.3%, to $10.77.

Economists, including former Federal Reserve chairman Alan Greenspan, have said that if the housing market does not weaken too substantially, the financial troubles of subprime lenders should not spread into the broader economy.

Talk of possible acquisitions also supported stocks today. An investment group that included Affiliated Computer Services' founder and chairman made an offer to take the company private, while speculation arose over media reports on other deals: that Palm Inc is a takeover target for both Nokia and a private equity investor, that an investment firm is close to signing a deal to acquire Claire's Stores, and that American International Group Inc could be attempting to acquire Prudential PLC.

Affiliated Computer Services rose $8.66, or 16.9%, to $59.95.

Palm rose 63 cents, or 3.5%, to $18.77.

Claire's rose $1.12, or 3.6%, to $31.23.

Ever-surging takeover activity has been a positive signal to investors that the US economy was not weakening quickly enough to prevent companies from signing deals.

"We're glad that credit is not being shut down. That's clearly on display today. We like that a ton," Russell said.

A potential deal to unite Dutch bank ABN Amro Holding NV with Barclays PLC helped lift the Dow more than 115 points.

Investors were also relieved by Oracle's third-quarter earnings after the closing bell yesterday. The database and software maker reported a profit, after excluding certain items, of 25 cents a share, above the average expectation. Oracle rose 3 cents in after-hours trading, after closing up 2.2% at $17.55.

John Hancock Funds equity trader Neil Massa noted, however, that many investors are waiting on the sidelines until the Fed's statement tomorrow.

"There seems to be a wait-and-see mood," Massa said. "I would wait until tomorrow to make a call."

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume totalled 1.46 billion shares, up slightly from 1.44 billion shares at the same point on Monday.

Overseas, Japan's Nikkei stock average rose 0.90%. The FTSE 100 gained 0.50%, Germany's DAX index advanced 0.43%, and France's CAC-40 rose 0.81%.

Gold prices rose. The dollar was little changed against the euro, but slipped versus the yen.

Crude futures rose 14 cents to $56.73 a barrel on the New York Mercantile Exchange. Petrol futures briefly leaped to a six-month high due to refinery problems, but then retreated ahead of US inventory data tomorrow.

The Russell 2000 index of smaller companies was up 6.55, or 0.83%, at 793.60.