Wall Street bets on rate cut

NEW YORK (CNNMoney.com) -- Stocks gained Monday, as investors geared up for an expected interest rate cut from the Federal Reserve later in the week.

Hopes that the Fed will cut rates helped investors take in stride record oil prices and another decline for the dollar versus the euro.

The Dow Jones industrial average (Charts) gained 0.5 percent, according to early tallies. The S&P 500 (Charts) index added 0.4 percent and the Nasdaq composite (Charts) added 0.5 percent.

Treasury prices inched higher, lowering the corresponding yields. Oil and gold prices jumped.

Here's a look at what was moving near the close.

Stocks surged Friday in a broad-based rally, and some of that momentum spilled over to Monday, as investors continued to bet that the Fed will cut rates again.

"The market tends to go on automatic pilot in the day or two before a Fed meeting and right now it's trading on the anticipation of a quarter-percentage point cut and the increased liquidity it will bring," said Ryan Atkinson, market analyst at Balestra Capital.

Traders are betting that central bank policy makers meeting Tuesday and Wednesday will cut the fed funds rate, a key short-term interest rate, by at least a quarter-percentage point, to 4.50 percent.

The Fed cut interest rates last month for the first time in four years, lowering the fed funds rate by a half-percentage point to 4.75 percent. The cut reflected worries that the credit and mortgage market turmoil could spread to the broader economy.

Recent economic reports have kept those worries in place and have raised bets that the Federal Reserve will cut rates again, despite the recent spike in oil prices, which increases inflationary pressures.

U.S. light crude oil for December delivery rose $1.67 to settle at $93.53 a barrel on the New York Mercantile Exchange, a record close. Crude reached a record $93.80 during the session.

In corporate news, Merrill Lynch CEO Stanley O'Neal is widely expected to announce his resignation from the firm, according to published reports, one week after the brokerage said it lost $8 billion in the third quarter due to bad mortgage bets.

Merrill (Charts, Fortune 500) shares rose.

The run up in oil and metal prices lifted shares of select companies in those sectors, including Dow components Exxon Mobil (Charts, Fortune 500) and Alcoa (Charts, Fortune 500).

The session also brought its share of earnings reports.

Verizon Communications (Charts, Fortune 500) reported that earnings fell from a year ago, but nonetheless topped forecasts. Shares of the Dow component rose less than 1 percent.

RadioShack (Charts, Fortune 500) reported higher quarterly earnings that beat forecasts and said fourth-quarter earnings will grow from a year ago, sending shares higher.

Office Depot (Charts) shares plunged 16 percent after the retailer said the release of its earnings will be delayed due to possible accounting irregularities found by an independent review. The news prompted a number of firms to downgrade the stock, AP reported.

Around 58 percent of the S&P 500 has reported results, and earnings growth is currently on track to have fallen 0.9 percent from a year ago, according to the latest Thomson Financial figures. That's a blended number, combining reported and expected earnings.

Market breadth was positive. On the New York Stock Exchange, winners beat losers nine to seven on volume of 980 million shares. On the Nasdaq, advancers and decliners were narrowly mixed on volume of 1.74 billion shares.

COMEX gold for December delivery rose $5.10 to settle at $792.60 an ounce.

Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 4.37 percent versus 4.38 percent late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell to another all-time low versus the euro and gained against the yen.