Bullish Wall Street grapples with rate concerns
Fri, Jan 01, 2010

NEW YORK - Wall Street enters the first trading week of 2010 on a bullish note but the market remains dogged by concerns on the timing of any interest rate hike by the Federal Reserve amid economy recovery.

The US central bank may shed some light on how the central bank will unwind its unconventional monetary policy that helped jolt the world's largest economy from prolonged recession.

Fed chief Ben Bernanke is scheduled to speak to the American Economic Association forum in Atlanta on Sunday, while the minutes of the December 15-16 Fed policy-making body meeting will be released on Wednesday.

They could provide more detailed clues on the Fed's updated outlook for the economy and evolving plans for an eventual "exit" strategy from virtually zero interest rates, with the market flush with liquidity.

"We still expect the Fed to stick to its guns on the current low-interest policy through at least the first half of 2010," said IHS Global Insight US economists Brian Bethune and Nigel Gault in a joint report.

They cited both inflation and output, which were "running below the Fed's target," as well as tight credit conditions and constrained demand for credit.

Wall Street stocks slumped at the close of a turbulent year Thursday, after positive jobs data sparked concerns that interest rates may rise sooner than anticipated.

But shares settled only slightly below their 52-week highs with strong gains for the year.

For the holiday-shortened week, the blue-chip Dow Jones Industrial Average lost 0.9 percent to 10,428.05 but gained 18.82 percent over the course of the year.

The technology-rich Nasdaq composite shed 0.7 percent for the week to 2,269.15 and the broad-market Standard & Poor's 500 index retreated 1.0 percent to 1,115.10.

The Nasdaq index racked up the largest percentage gain for the year, wrapping up 2009 with a 43.9 percent jump while the S&P 500 index jumped 23.5 percent.

Analysts are confident the market will continue its ascent, considering the 2.2 percent US economic growth chalked up in the July-September period -- the first quarter of recovery after a year of contraction -- as well as rising existing-home sales and durable-goods orders.

"The important trends remain positive," said Al Goldman, chief market strategist for Wells Fargo Advisors.

"Employment trends are improving, and we still look for the labor market to start turning up by the spring. The trend of corporate earnings in 2010 is probably one of the most positive things going for stocks," he said.

Frederic Dickson, chief market strategist for DA Davidson & Co, said the outlook for the stock market in 2010 was positive but subdued.

"We are looking for the stock market to rise between 8.0 and 10.0 percent in 2010. We expect most of the gains will be realized early in the year," he said.

Goldman Sachs economist Jan Hatzius expects sluggish GDP growth in 2010 and employment gains that are too slow to prevent a further modest increase in the unemployment rate, now hovering at 10 percent.

"Key questions on the economy include whether house prices have bottomed -- we think not; whether banks will become more willing to lend -- only very gradually; whether firms will hire vigorously -- probably not; and whether the saving rate will rise further -- we think so," Hatzius said.

For the week, bonds were mixed. The yield on the 10-year Treasury bond rose to 3.843 percent from 3.807 percent a week earlier while that on the 30-year bond dipped to 4.641 percent from 4.687 percent. Bond yields and prices move in opposite directions.

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