US stocks gain after jobless claims drop

Wall Street shook off early uncertainty to close moderately higher today as a series of mixed economic reports managed to make investors more optimistic about the chances for an interest rate cut.

The market was uneasy after the Mortgage Bankers Association said homeowners beginning the foreclosure process in the second quarter reached a record 0.65%.

It was the third consecutive quarter that the figure reached an all-time high.

Although investors want growth to be slow enough to merit a rate cut when the Federal Reserve meets on September 18, they do not want to see the economy weaken to the point of recession.

But investors gleaned some reason for optimism from comments from Dallas Federal Reserve president Richard Fisher, who said inflationary pressures are “increasingly well-behaved” and the central bank is “listening carefully” to business conditions.

St Louis Fed president William Poole made similar comments earlier in the day.

“They didn’t explicitly say they were going to cut rates, but some of the talk from the day gave reason to believe they may be leaning that way,” said Todd Salamone, director of trading at Schaeffer’s Investment Research.

“The market is driven by words from the Fed that reinforces the idea they’ll step up if necessary, and it is also very much data driven.”

Reports on the job market, service sector, and August retail sales did not disappoint investors.

Last week, for the first time in seven weeks, claims for unemployment benefits dropped, the Labor Department said. It also reported that worker productivity jumped to an annual growth rate of 2.6% in the April to June quarter – much better than expected.

The snapshots boded well for tomorrow’s August employment report, the economic reading that investors consider the most important this week.

The Dow Jones industrial average rose 57.88, or 0.44%, to 13,363.35, after earlier wobbling in and out of positive territory.

Broader stock indicators also lifted. The Standard & Poor’s 500 index rose 6.26, or 0.43%, to 1,478.55, and the Nasdaq composite index rose 8.37, or 0.32%, to 2,614.32.

Bonds fell as stocks recovered ground. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose to 4.51% from 4.47% late yesterday. The dollar was lower against most other major currencies, while gold prices jumped.

The credit markets, whose problems caused the volatility on Wall Street over the past month, remain tight.

The New York Fed, which carries out the central bank’s market operation, injected a total of 31.25 billion dollars through three repurchase agreements today – the largest amount the Fed has injected in weeks – to help keep the markets liquid.

The Fed also reported that about 3% of asset-backed commercial paper, a type of bond companies sell for quick cash, was unable to be rolled over in the week ended yesterday.

In addition, Wall Street does not want to see signs of accelerating inflation - such as surging crude oil prices, which briefly spiked above 77 dollars a barrel today on supply worries after the US embassy in Nigeria said American and other Western interests in the country are at risk of a terrorist attack and after news that Syrian armed forces had opened fire on Israeli fighters. Inflationary risks have kept the Fed from lowering interest rates in recent months.

A barrel of light, sweet crude rose 57 cents to 76.30 dollars on the New York Mercantile Exchange.

John O’Donoghue, co-head of equities at Cowen & Co, said most of today’s news was fairly benign.

He explained that most people were waiting to see the jobs report tomorrow, which could give the markets a better idea about what the Fed’s next move will be.

“They’re waiting for the jobs number,” he said. “I think people are kind of sitting on their hands.”

With investors on alert for any sign that recent financial market turmoil has hurt consumer spending, better-than-expected August sales from major retailers Wal-Mart Stores Inc and Target Corp perhaps came as a welcome surprise.

Wal-Mart said same-store sales, which measure business at stores open at least one year, rose 3.1%, while Target said same-store sales in August rose 6.1%.

The two biggest retailers beat Wall Street estimates. Wal-Mart rose 31 cents to 42.76 dollars, and Target rose 1.51 dollars, or 2.4%, to 63.39 dollars.

Tony department store chain Saks Inc, teen apparel retailer Pacific Sunwear of California Inc, and children’s clothier The Children’s Place Retail Stores Inc also topped analyst projections.

Saks rose 49 cents, or 3.2%, to 15.81 dollars, Pacific Sun advanced 74 cents, or 5.2%, to 14.99 dollars, while Children’s Place fell 29 cents to 27.68 dollars.

Meanwhile, the Institute for Supply Management’s reading on the non-manufacturing sector showed that activity expanded in August at the same rate as in July.

Not only were investors worried about the rising foreclosure rate, but late yesterday mortgage lender Countrywide Financial Corp said it would cut another 900 jobs nationwide after axing about 500 positions last month. The nation’s largest mortgage lender by volume employs about 60,000 people.

Countrywide fell 33 cents, or 2.1%, to 18.48 dollars.

Lehman Brothers Holdings Inc fell 52 cents to 53.83 dollars after the fourth-largest US investment bank announced it is laying off 850 people from its home lending business in the US and Britain. The company previously announced the closure of its BNC Mortgage LLC subsidiary.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to about 1.28 billion shares, up from 1.25 billion yesterday.

The Russell 2000 index of smaller companies fell 0.35, or 0.04%, to 792.92.