Markets Rise While Awaiting Fed

Wall Street closed modestly but broadly higher Tuesday on news that consumer confidence surged to a two-year high. The report quelled some investors’ concerns about the economy on the eve of today’s Federal Reserve decision on interest rates.

A continuing slide in oil prices also helped market sentiment.

The Dow Jones industrial average gained 56.34 points, or 0.5%, to 10,413.43.

Among broader indexes, the Standard & Poor’s 500 rose 2.85 points, or 0.2%, to 1,136.20, and the Nasdaq composite was up 15.11 points, or 0.8%, at 2,034.93.

The S&P; 600, an index of small-company stocks, gained 2.57 points, or 0.9%, to 294.32, a record high. The move underscored the strong performance of many smaller shares in the first half of the year.

Winners topped losers by about 3 to 2 on Nasdaq and by a slim margin on the New York Stock Exchange.

The Fed is expected to announce this morning that it is raising its benchmark short-term interest rate, the federal funds rate, to 1.25% from 1%. It would be the first increase in four years, and would be aimed at keeping the economy from overheating.

Investors will be looking closely at the statement the Fed issues. The central bank is expected to indicate that it plans to continue raising rates at a relatively slow pace, unless inflation surges.

Anticipation of a Fed increase has pushed longer-term bond yields higher in recent months. Yields eased on Tuesday: The 10-year T-note dipped to 4.69% from 4.74% on Monday.

Some economists say inflation pressures could ebb if energy prices continue to slide. Near-term crude oil futures in New York fell 58 cents to $35.66 a barrel, a nine-week low, as more speculators cashed out of the markets amid decreasing concerns over supplies.

For Wall Street, the Conference Board’s report of a jump in consumer confidence in June suggested that underlying demand in the economy remains healthy, which would bode well for corporate sales and earnings.

“Consumers are more confident about jobs and job-income growth,” Dennis Fitzpatrick, who helps manage $2.9 billion at First Investors Management in New York, told Bloomberg News. “And a lot of people are coming to the conclusion that a gradual approach to increasing [interest] rates is not the death knell for equities.”

The consumer confidence report helped the market overcome disappointing news from Washington Mutual and Target, both of which issued downbeat financial forecasts.

Today is the final trading day of the first half. The Dow index is down 0.4% year to date. The S&P; 500 is up 2.2% and the Nasdaq composite is up 1.6%.

The S&P; small-stock index is up 8.8%. Another small-stock index, the Russell 2,000, is up 5.6%.

Among Tuesday’s highlights:

* Washington Mutual skidded $2.84 to $38.47, and traded as low as $36.80, after the Seattle-based bank lowered its 2004 earnings forecast, citing the effect of rising interest rates on its mortgage business.

Countrywide Financial, the second-largest U.S. mortgage lender, shed $2.18 to $69.32. Wells Fargo was off 40 cents to $57.35.

* Target fell $1.75 to $42.29 after saying that June sales were well below expectations. Other retailers also lost ground. J.C. Penney fell $1.15 to $37.77; Nordstrom slid $1.63 to $42.63.

* Many technology shares were higher. Qualcomm jumped $2.88 to a three-year high of $71.55 after a Banc of America Securities analyst said the company would be a big winner from the rise of high-speed mobile Internet services.

Computer-related companies contributed the most to the S&P; 500’s gain. Solectron, which makes computer parts, jumped 29 cents to $6.27. Advanced Micro, Intel’s biggest rival in personal-computer processor chips, added 53 cents to $15.82. Intel gained 22 cents, to $27.60.

* A bullish analysis from Lehman Bros. helped Boeing, which added 30 cents to $50.51. The brokerage firm increased its earnings outlook for the aircraft manufacturer based on stronger aircraft deliveries.

* Online retailer Amazon.com said it was seeking to dissolve its partnership with Toys R Us, claiming its contract with the toy retailer has been a “chronic failure.” The two are embroiled in a legal battle and have entered mediation. Amazon rose 32 cents to $53.71, while Toys R Us lost 30 cents to $15.88.

* Among Southland issues, Jacobs Engineering tumbled $6.43 to $40 after warning late Monday that quarterly results would fall short of estimates.

* OM Group, the world’s biggest producer of cobalt, soared $3.03, or 10%, to $33.04. The shares were upgraded to “buy” from “hold” by Saul Ludwig, an analyst at KeyBanc Capital Markets.

* Gold mining stocks fell as the metal’s price in New York futures trading slid $8.50 to $392.50 an ounce. Gold lost ground as the dollar strengthened after the consumer confidence report, analysts said.