Stocks post modest gains on Fed news

Stocks rose modestly Wednesday after the Federal Reserve’s latest interest rate meeting ended without any surprises, allowing investors to continue to focus on takeover scenarios and strong corporate profits.

The Dow Jones industrial average marked its sixth record close in seven sessions. The Standard & Poor’s 500 index climbed to within 1% of its 2000 all-time high.

Investors also were pleased by another drop in oil prices and a government report indicating that the country’s gasoline inventories rose last week after three months of declines. If inventories keep increasing, fuel costs for U.S. drivers are likely to ease.

Stocks have rallied in recent weeks on surprisingly robust first-quarter results and a steady flow of major takeover bids.

The Fed, leaving its key short-term interest rate unchanged, said the economy was growing at a moderate pace and that core inflation, while elevated, was likely to slow.

Share prices treaded water for most of the session, then rallied after the Fed issued its statement.

“The Fed is keeping a watchful, parental eye on the rate of inflation, and the rate seems to be quite manageable,” said Georges Yared, investment strategist at Yared Investment Research in Wayzata, Minn. “I think investors are reacting positively to the fact that the Fed didn’t really rock the boat.”

The Dow rose 53.80 points, or 0.4%, to 13,362.87, its 21st record close since the beginning of the year.

The S&P; 500 added 4.86 points, or 0.3%, to 1,512.58 -- a new 6 1/2 -year high and within sight of its record close of 1,527.46 reached March 24, 2000.

The Nasdaq composite index climbed 4.59 points, or 0.2%, to a six-year high of 2,576.34.

The Russell 2,000 index of smaller companies rose 3.87 points, or 0.5%, to a record close of 834.77.

Advancing issues outnumbered decliners by about 7 to 4 on the New York Stock Exchange.

The stock market has reacted well to the Fed’s stance of holding rates level, its policy since August; the Dow has hit 43 record closes since the start of October.

“I think the markets can react favorably without the Fed lowering rates,” said Steven Goldman, a strategist at Weeden & Co., saying rates would remain stable as long as the economy kept growing moderately and inflation didn’t accelerate too much. “We walk this tight line, and equities continue to edge higher.”

Bond yields, however, have risen in recent months as hopes for Fed rate cuts have dimmed. Yields climbed Wednesday after the Fed statement. The yield on the 10-year Treasury note rose to 4.67% from 4.62% on Tuesday.

The dollar benefited from the Fed’s decision to keep rates where they are: The euro, which has surged in recent months against the greenback, slipped to $1.353 from $1.355 on Tuesday. Gold prices fell as the dollar rose.

Crude oil futures dropped 71 cents to $61.55 a barrel in New York. The price has slumped from $66.46 on April 27.

Among the takeover possibilities buoying stocks, mining company Rio Tinto surged on speculation that larger rival BHP Billiton was planning a bid for it. Rio Tinto jumped $31.62, or 12%, to $296.27. BHP rose $2.51, or 4.9%, to $53.41.

OfficeMax jumped $3.29, or 7.9%, to $44.97 for the top advance in the S&P; 500. The No. 3 office-supply retailer may be a buyout target for larger rivals Staples or Office Depot in an industry “that only needs two large players,” according to Credit Suisse. Staples shares fell 3 cents to $25.06, while Office Depot gained 2 cents to $34.56.

Alltel climbed $1.36 to $66.56, its highest level since 1999, on a report of talks between the nation’s fifth-largest wireless service and three groups of buyout firms. Telecommunications shares rose 0.7% as a group for the steepest gain among 10 industries in the S&P; 500.

In other market highlights:

* Technology bellwether Cisco Systems was the biggest drag on the S&P; and Nasdaq. The world’s largest maker of equipment that directs Internet traffic issued an outlook in line with forecasts, but analysts said investors had hoped for a surprise to the upside. Cisco fell $1.85, or 6.5%, to $26.51, even though its fiscal third-quarter profit soared 34%.

* IBM advanced $1.09, or 1.1%, to a five-year high of $104.38, giving the Dow industrials their biggest boost. Goldman Sachs raised its recommendation to “buy” from “neutral,” saying the company’s accelerated share repurchasing plan might lift profit this year and next.

* Texas Instruments rallied $1.66, or 4.7%, to $36.83 after the world’s largest maker of mobile phone chips raised a profit margin forecast.

* Electronic Arts dropped $2.29, or 4.3%, to $50.65. The video game leader Tuesday reported a wider fourth-quarter loss and said profit in the current period might miss analysts’ estimates amid a dearth of new titles.

* Gateway fell 15 cents, or 7.2%, to $1.92. The computer maker narrowed its first-quarter loss, but investors were disappointed by declining revenue.

* Dendreon plunged $11.41, or 64%, to $6.33. The drug developer said U.S. regulators wanted more data on its prostate cancer medicine, delaying approval of the company’s first product.

* Dow Jones slid $2.80, or 5.1%, to $52.20 after News Corp. Chief Executive Rupert Murdoch said his $60-a-share bid for the publisher of the Wall Street Journal was “full and fair.”

* Foster Wheeler soared $14.60, or 20%, to $87.75. The engineering and construction services company reported strong first-quarter profit because of a robust energy market.

* Among Southland issues, United Online rose 17 cents to $16.52, its highest in more than two years. But after regular trading ended the Woodland Hills-based Internet service provider said its president and chief financial officer, Charles Hilliard, quit to join Demand Media Inc.

* Shanghai’s benchmark stock index rose 1.6% to 4,013.09, topping the 4,000 mark for the first time, as investors shrugged off official warnings of a possible market bubble amid soaring corporate profits. The index is up 50% this year, despite a nearly 9% drop in February that led to a brief sell-off in global markets.