NEW YORK (CNN/Money) -
Hints that the Federal Reserve plans to keep interest rates unchanged for the foreseeable future lifted stocks Tuesday, giving investors an incentive to keep pouring money into technology stocks.
A renewed interest in the sector had set the major indexes off on the right foot in the early going and the Fed's mid-afternoon decision to keep interest rates steady added to the momentum.
However, the Fed's decision and statement offered few surprises, leaving some market watchers a bit unsettled by the market's reaction.
"I'm not so sure that the rally was commensurate with the news out of the Fed," said Donald Selkin, director of research at Joseph Stevens. "They seemed to say that they're going to keep rates low for a long time, which wasn't a surprise, but maybe people felt better seeing it spelled out more clearly."
With options expirations on tap for the end of the week and a rush of short-covering near the close, Selkin and other analysts said that traders were also perhaps using the Fed's comments as a good reason to buy.
Technology leadership has been the norm for most of the late summer and early fall, with big cap tech leaders on the Nasdaq and elsewhere pulling buyers off the sidelines.
As a result, September so far has defied expectations for seasonal weakness, in line with recent years. A dearth of negative third-quarter earnings pre-announcements has added to the mostly upward momentum. But with stocks surging so far, so fast, there may be an increased tendency for profit taking, particularly in the next few days.
However, Wednesday trade in the early going looks to be on the upside.
Dow stock Altria (MO: down $0.14 to $40.46, Research, Estimates) rallied in after-hours trade Tuesday after the Illinois Supreme Court reinstated a lower court's decision to reduce the bond payment its Philip Morris USA unit must post in order to appeal a verdict in a lawsuit. The Illinois Supreme Court also agreed to hear the appeal of the $10.1 billion verdict against PMUSA regarding marketing of its disputed "light" cigarettes.
Among other corporate news likely to influence trade Wednesday: electronics retailers Circuit City (CC: up $0.30 to $11.20, Research, Estimates) and Best Buy (BBY: up $0.49 to $52.66, Research, Estimates) are both due to report results before the start of trading. Circuit City is expected to report a loss of 13 cents per share, worse than the loss of 5 cents per share the company reported a year earlier, according to earnings tracker First Call. Best Buy is expected to have earned 42 cents per share, up from the 24 cents per share it earned a year earlier.
Reports on August housing starts and building permits are also due, but are usually not big market movers.
Tuesday's market
The Nasdaq composite (up 41.55 to 1887.25, Charts) closed 2.25 percent higher, the Dow Jones industrial average (up 118.53 to 9567.34, Charts) closed 1.25 percent higher, and the Standard & Poor's 500 (unchanged at 1029.32, Charts) index closed 1.5 percent higher.
Few expected the Federal Open Market Committee, the Fed's policy-making arm, to change the all-important fed funds rate from its record low of 1.0 percent. It was the Fed's view on the economy and any indication of future rate changes in the Fed's statement that investors were watching for, and reacted to.
The enthusiasm was sufficient to drown out the growing controversy over NYSE Chairman Dick Grasso's compensation package and any other lurking negatives.
Sun Microsystems (SUNW: up $0.18 to $4.04, Research, Estimates) added 4.7 percent, after the company unveiled new software products to compete with Microsoft's (MSFT: up $0.54 to $28.90, Research, Estimates) Windows operating system.
Other influential technology shares boosting the Nasdaq included Cisco Systems (CSCO: up $0.90 to $21.29, Research, Estimates), which gained 4.4 percent, Applied Materials (AMAT: up $0.80 to $21.38, Research, Estimates), which gained 3.9 percent, and Intel (INTC: up $0.92 to $28.91, Research, Estimates), which gained 3.3 percent.
Nortel Networks (NT: up $0.35 to $4.50, Research, Estimates) added 8.4 percent in very active NYSE trade after French telecom Orange SA confirmed that the company was one of three key suppliers for the creation of its third-generation network.
Dow 30 member International Paper (IP: up $1.18 to $41.00, Research, Estimates) added almost 3 percent after Merrill Lynch added the company to its Focus 1 list, saying that IP will benefit from the coming recovery in its sector.
On the downside, shares of Dow stock Coca-Cola (KO: down $0.58 to $42.92, Research, Estimates) fell 1.3 percent after Thomas Weisel downgraded the stock to "peer perform" from "outperform," saying that weak global volume trends persist and that earnings beyond the third quarter will likely need to be downwardly revised.
The day's corporate news included a couple of large deals. Defense contractor Lockheed Martin (LMT: down $0.97 to $50.00, Research, Estimates) said it will buy Titan (TTN: up $4.33 to $21.29, Research, Estimates), a provider of information technology for the government, for about $2.4 billion, or $22 a share. The news sent Titan's stock surging 25.5 percent, while Lockheed lost 1.9 percent.
In addition, AOL Time Warner (AOL: up $0.28 to $16.05, Research, Estimates), the parent of CNN/Money, agreed to sell the Atlanta Hawks basketball team and the Atlanta Thrashers ice hockey team. Separately, the company will vote Thursday on whether to drop AOL from its name. The stock gained 1.8 percent.
In other potentially market-influencing news, pressure on NYSE Chairman Dick Grasso to resign continued to build following questions about his compensation. On Tuesday, representatives of California's largest public pension fund, as well as New York State Comptroller Alan Hevesi, have also called for his resignation. However, various directors of the NYSE have either said that Grasso's job is not in trouble, or have refused to respond to the requests for his removal.
Between the Fed news and the day's stock gains, investors barely noticed the morning's economic data: a survey from staffing firm Manpower showing that a bigger percentage of employers plan to hire workers in the fourth quarter than cut them from the payrolls, and the August reading on consumer prices, which missed expectations, showing that inflation is still not a problem.
Bond prices flip-flopped following the Fed announcement, finally settling near the unchanged line. The 10-year Treasury note fell 1/32 of a point in price, its yield inching up to 4.27 percent from 4.26 percent late Monday. The dollar remained strong against the euro and weakened versus the yen.
Winners beat losers by a more than 11-to-5 margin on the New York Stock Exchange, where 1.35 billion shares traded; and on the Nasdaq 1.76 billion shares changed hands.
NYMEX light sweet crude oil fell 57 cents to settle at $27.68 a barrel. COMEX gold fell $1 to settle at $374.60 an ounce.
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