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Wall Street pushes higher

Wall Street shares pushed higher over the past week as investors appeared to adjust to the probability of higher interest rates that are likely to accompany a strengthening US economy.

In the week to Friday, the Dow Jones Industrial Average of 30 top stocks advanced 0.2 percent to 10,472.84 and the broad-market Standard and Poor's 500 index climbed 0.53 percent to 1,140.60.

The technology-laden NASDAQ composite index, which is often more volatile, rallied 2.63 percent to 2,049.77

The markets were roiled early in the week after Federal Reserve Chairman Alan Greenspan appeared to lay the groundwork for a boost in US interest rates, noting that the economy was strengthening and the threat of deflation vanishing.

Meanwhile a sharper-than-expected 0.5 percent rise in US wholesale prices fueled inflation concerns and robust economic data including a sizzling 3.4 percent gain in durable goods orders suggested the need for super-low interest rates was over.

"It's the tug of war again between a bullish economy and higher interest rates," said Jay Suskind, director of trading at Ryan, Beck and Co, commenting on the mixed market reaction to the latest data.

"The knee-jerk reaction is to sell off on the higher rate fears, but a stronger economy also means higher corporate profits down the road."

Sung Won Sohn, chief economist at Wells Fargo Bank, said the strong economic growth inevitably means a rise in interest rates, which could produce more pain for the bond markets and jitters for the stock market.

"There is too much liquidity in the economy; the interest rate will have to rise significantly. The question is when and how rapidly," he said.

But Sohn said higher interest rates "do not necessarily mean a bear market for stocks," and suggested the stock market could hold firm as long as the Fed moves slowly on interest rates.

However, the surprisingly strong economic figures, coming in tandem with high oil prices and increasing labor market pressures, is fueling concern about the old economic villain of inflation.

"In reality, strong inflation poses a much bigger risk to the markets than strong growth," said Lehman Brothers economist Ethan Harris.

"If growth is strong, the Fed's objective will be to raise interest rates enough to slow growth back to trend ... By contrast, if inflation is truly rising above acceptable levels, the fundamental picture for the markets is more dire."

Lynn Reaser, chief economist at Banc of America Capital Management, said investors "should not be unduly alarmed by Mr. Greenspan's remarks," suggesting that the boost in rates would not likely derail the economic recovery.

"A strengthening in pricing power should help profit margins, while interest rates are likely to remain moderate," Reaser said.

"After adjusting to the prospect of interest rates climbing from their abnormally low levels, investors should realize that rising profits could still support higher equity prices this year."
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