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Markets shake off interest rate fears

The Dow and Nasdaq post gains in advance of the Fed's meeting, turning around last week's losses.

The Dow Jones Industrial Average rebounded Monday as investors snapped up shares of companies battered in last week's selloff. The Dow's strength lifted other market measures out of a slump despite lingering worries that interest rates are headed higher.

The Dow rose 201.66 to 10,940.53, its steepest point gain since Jan. 7. The rally helped the Nasdaq Composite Index bounce back from a midday loss of 120 points to close up 53.28 at 3,940.35. The Standard & Poor's 500 rose 34.30 to 1,394.46.

Trading was volatile as the Fed's Open Market Committee prepared to meet in Washington today and Wednesday. Most economists expect the Fed to raise interest rates a quarter percentage point by Wednesday, but some analysts are forecasting a steeper increase.

Stocks rose on a surprising wave of strength from bank and brokerage stocks, led by American Express and J.P. Morgan. Those stocks typically falter when investors are worried about rising interest rates. But after sending most financial stocks lower last week, investors opted Monday to punish highly priced technology stocks instead. And with market enthusiasm still running fairly high, many investors turned back to financial shares as relative bargains, traders said.

For most of the session, blue-chip industrial shares such as Exxon Mobil and 3M rose at the expense of the technology sector. The Nasdaq composite fell as much as 120 points and appeared likely to extend Friday's 152-point plunge.

But the technology-dominated index turned around partly because of a sharp rise in Qualcomm, its best performing stock in 1999. Qualcomm has slumped in recent sessions and, at its lowered price, may now be more appealing to buyers, analysts said.

"Some of these stocks that have been in the stratosphere are just coming back to more realistic levels," said Nick Sargen, chief investment strategist for J.P. Morgan's private client group.

Qualcomm gained $16.43} to $127. Bargain-hunting also helped lift Yahoo, which gained $8.56\ to $322.06\.

The latest sign that sharply higher interest rates may be needed to slow the nation's runaway economic growth came Monday from the Commerce Department, which said personal income increased by 0.3 percent in December while spending rose a brisk 0.8 percent. Feverish consumer spending has been a major driver of the economic boom.

"Over the past few weeks, investors have become progressively more nervous about the strong economy," said John H. Shaughnessy, chief investment strategist at Advest Inc., who expects the Fed to raise rates this week, and again in March and in May.

Shaughnessy said interest rate worries are likely to dominate trading until the economy shows some sign of slowing down. "Looking ahead, we are going to have to deal with a very volatile stock market," he said.