Wall Street bets on rate cut

NEW YORK (CNNMoney.com) -- Stocks gained Monday, as bets that the Federal Reserve will cut interest rates later this week distracted investors from record oil prices above $93 a barrel and another decline for the dollar versus the euro.

The Dow Jones industrial average (Charts) climbed around 0.5 percent, while the S&P 500 (Charts) index added 0.4 percent.

The tech-fueled Nasdaq composite (Charts) gained 0.5 percent to end at a new 2007 record and its highest close in nearly seven years.

The October consumer confidence report from the Conference Board is due on Tuesday morning.

Procter & Gamble (Charts, Fortune 500), Avon Products (Charts, Fortune 500) and Colgate-Palmolive (Charts, Fortune 500) lead the list of companies reporting quarterly results on Tuesday morning.

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 2 percent.

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).

Boeing (Charts, Fortune 500) shares rose after the company's board announced a new $7 billion share repurchase plan and a dividend of 35 cents per share.

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 14 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 59 percent of the S&P 500 has reported results, and earnings growth is currently on track to have fallen 1 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 almost 1.22 billion shares. On the Nasdaq, advancers barely edged decliners on volume of 2.05 billion shares.

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

Treasury prices inched higher, with the yield on the benchmark 10-year note at 4.38 percent, little changed from 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.