Friday April 2, 2004

By Mark Cotton


NEW YORK (CBS.MW) - U.S. stocks were holding gains in the last hour of trading of trading Friday as investor sentiment received a boost from a stronger-than-expected March employment report, with both blue chips and the Nasdaq poised to end higher on the week.
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The growth in jobs, which beat expectations for the first time in five months, was strong enough that investors ignored warnings from numerous economists that the data may prompt the Federal Reserve to rethink its accommodative interest rate policy.

Robert Brusca, chief economist at Fact & Opinion Economics said the data showed that jobs growth was strong, and upward revisions to past numbers made the upward trend look more durable.

"This report puts the Federal Reserve a step closer to hiking rates," Brusca said. "Not yet, but don't fight the market.

SG Cowen head of listed trading, Todd Leone, said the jobs number was "great," but also warned that it might lead the Fed to talk "a little bit more" about raising interest rates..

The Dow Jones Industrials Average (^DJI - News) was last up 73 points, or 0.7 percent, to 10,445, with 23 of 30 components gaining ground. The blue chip barometer reached a one-month high of 10,496 earlier in the session.

Meanwhile, the technology sector was aided by a surge in Sun Microsystems (NasdaqNM:SUNW - News) , which followed news that the company would receive about $2 billion from Microsoft as part of a technology collaboration agreement and to settle outstanding litigation.

The technology-friendly Nasdaq Composite (NasdaqSC:^IXIC - News) hiked up 35 points, or 1.7 percent, to 2,050, and the S&P 500 Index (CBOE:^SPX - News) added 7 points, or 0.6 percent, to 1,139.

In the broad market, advancers had a slight 16 to 15 edge over decliners on the NYSE, while gainers outpaced fallers by a 2 to 1 score on the Nasdaq exchange.

Volume was 1.31 billion shares on the NYSE, and 1.81 billion on the Nasdaq.

Within the Dow, the biggest gainers included technology heavyweights Microsoft (NasdaqNM:MSFT - News) , Intel (NasdaqNM:INTC - News) , and IBM (NYSE:IBM - News) , as well as Alcoa (NYSE:AA - News) , DuPont (NYSED - News) , Boeing (NYSE:BA - News) and Caterpillar (NYSE:CAT - News)

J.P. Morgan Chase (NYSE:JPM - News) was among the Dow's biggest losers, and fellow financial services giant Citigroup (NYSE:C - News) also fell after reaching a 52-week high in intraday trading. Other Dow decliners included General Motors (NYSE:GM - News) , Home Depot (NYSE:HD - News) and Eastman Kodak (NYSE:EK - News) .

The semiconductor sector (Philadelphia:^SOXX - News) was among Friday's strongest, boosted by an industry report that said global chip sales rose 31 percent in March ( read more ). Also, WR Hambrecht said chip equipment stocks were poised to rally in the next six months, amid accelerating order growth and attractive valuation.

Computer hardware (CBOE:^GHA - News) , airline (AMEX:^XAL - News) , networking (AMEX:^NWX - News) and Internet (CBOE:^GIN - News) stocks also advanced, while gold (CBOE:^GOX - News) , brokerage (AMEX:^XBD - News) and bank (Philadelphia:^BKX - News) sectors were among the few lowers.

The U.S. Labor Department said non-farm payrolls increased 308,000 in March, well above expectations of 122,000. In addition, February's payroll growth was raised to 46,000 and January's to 159,000 from 21,000 and 97,000, respectively. See Economic Report .

It was the first positive surprise in non-farm payroll growth in five months.

The unemployment rate rose to 5.7 percent, however, vs. expectations that it would remain unchanged at 5.6 percent.

"Obviously it was a very solid number but I am more concerned about the implications as regards to the Fed," said Peter Boockvar, equity strategist at Miller Tabak. "The Fed is likely to raise rates in August, possibly earlier, and markets don't rally during rate hiking cycles."

Attention was diverted briefly from Wall Street to the courtroom after Superior Court Judge Michael Obus declared a mistrial in the corruption trial of two former Tyco International executives.

Bonds dive, dollar leaps
Better-than-expected jobs growth sent bonds reeling. The yield on the benchmark 10-year Treasury note (CBOE:^TNX - News) charged up 0.253 percentage points -- the biggest rise since last July -- to 4.151 percent, and reached a 2-month high of 4.171 percent in intraday trading. See Bond Report .

"Many different indicators have been pointing to better payroll numbers for some time," said High Frequency Economics chief U.S. economist Ian Shepherdson. "The Fed is now back in play."

Currency traders bid up the dollar across the board on the data, as higher interest rates would make the buck more attractive to foreign investors. The dollar rose 2.1 percent vs. the euro to $1.2108, rallied 2.4 percent against the Swiss franc to $1.2927 and climbed 0.6 percent vs. the Japanese yen to 104.30. See Currencies .

Within commodities, June gold futures fell more than $6 an ounce to end the week narrowly lower, dragged down by the resurgent dollar.

May crude futures shed 34 cents to $33.93, and had hit a 6-week low of $33.30 in intraday trading.

See Metals Stocks and Futures Movers .

Sun Micro rallies, Gateway gains
Sun Micro (NasdaqNM:SUNW - News) shares ran up 18 percent on the Microsoft (NasdaqNM:MSFT - News) news, which overshadowed the server maker's announcement that it would cut 3,300 jobs as part of a broad restructuring, and that it would miss fiscal third quarter financial forecasts.

Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum, said Sun likely had little choice but to cut costs, and was an admission that business was not improving.

"Their product is caught in the middle somewhere between Microsoft and IBM, on the small side to the large side," Hyman added.

Microsoft shares, the most-heavily weighted Nasdaq component, and a Dow member to boot, gained 2.3 percent.

Elsewhere, PC-maker Gateway (NYSE:GTW - News) rose nearly 10 percent after the company said late Thursday that it would cut 2,500 jobs as it closes all of its retail stores effective April 9.

Bear Stearns followed by upgrading the stock, as the move may push the company closer to its goal of sustained profits in 2005.