Rate-Cut Prospect Lifts Dow Again, by 79

U.S. stocks rose for a third straight session on expectations that lower interest rates will help spur earnings growth even as world economies slow.

“It’s a 70% certainty” that the Federal Reserve Board will cut interest rates, said R. Lynn Yturri, manager of the $850-million One Group Income Equity Fund. That “would be a short-term boost for the market.”

The Dow Jones industrial average rose 79.04 points, or 1%, to 8,024.39, bringing its three-session gain to 408 points, or 5.4%. The Dow is down 14% from its July 17 high.

Broader indexes were up slightly in the unusually calm session. The Standard & Poor’s 500 index gained 7.96 points, or 0.8%, to 1,037.68. The Nasdaq composite index climbed 12.42 points, or 0.7%, to 1,678.11.

Bond prices were little changed, with the 30-year Treasury yield rising to 5.26%, up 0.03 percentage points.

The dollar was down against several major currencies, but settled at 133.90 Japanese yen, up 1.22.

Stocks of financial services firms and banks such as Morgan Stanley Dean Witter and Fleet Financial Group led the gains. Lower interest rates would reduce the cost of doing business for these companies.

Fed Chairman Alan Greenspan and Treasury Secretary Robert Rubin are scheduled to testify today before the House Banking Committee on the global economy and financial markets, and may offer clues about the outlook for interest rates.

Morgan Stanley climbed $3.19 to $56.31, Fleet gained $2.69 to $77.25, and American Express rose $3.19 to $84.88.

Providian Financial Corp. shares soared $11.50 to $72.94 after the credit card company’s chairman said it could increase earnings by as much as 50% this year and next, more than analysts are forecasting.

Several companies warned that profits may not meet expectations, including Suiza Foods, one of the largest U.S. dairy companies, which tumbled $9.69 to $30.06 after warning that “unprecedented increases” in butterfat prices will cut into its earnings for the next two quarters.

Cummins Engine fell $7.50 to $35.25 after the diesel engine maker said revenue in the third quarter will be 7% to 10% below the second quarter’s because of slower sales worldwide. It said it will take a charge of $145 million in the third quarter.

Other companies that warned profits may not meet expectations included themed restaurant chain Rainforest Cafe, down $1.81 to $6.31; Cylink Corp., down $2.75 to $5.13; and Foothill Ranch-based clothing chain Wet Seal, down $5.19 to $14.56.

Some investors were reluctant to make large moves ahead of the expiration Friday of stock and index options and index futures. So-called “triple witching” days, when all three types of contracts expire together, can lead to large orders to buy and sell, making prices bounce erratically.

“People don’t want to take a chance on market uncertainty and being caught at the last minute where everybody jumps together and if they are selling they push prices down, or if they are buying they are pushing prices up,” said Scott Fullman, chief options strategist at Swiss American Securities.

Many investors are concerned that the U.S. market is vulnerable to currency devaluations, debt defaults and economic recessions in developing countries.

Billionaire U.S. hedge fund manager George Soros called on Congress to provide billions of dollars to the International Monetary Fund, warning that the lawmakers can no longer ignore the “disintegration of the global capitalist system.”

Soros, testifying before the House Banking Committee, acknowledged that the IMF programs in East Asia and Russia “clearly did not work,” and called for the establishment of additional international institutions to restore stability.

Among Tuesday’s U.S. market highlights:

* Coca-Cola fell $2.13 to $61.19 after Michael Branca, an analyst at Lehman Bros., cut his 1999 earnings estimate to $1.73 a share from $1.86 because of slowing sales in Eastern Europe, Latin America and Asia. The beverage company gets 75% of its profits from markets outside the U.S.

Branca also reduced his 1999 earnings forecast for PepsiCo to $1.39 from $1.52. Pepsi fell $1.31 to $30.

* RJR Nabisco Holdings, which replaced MCI in the S&P; 500 after the market’s close, gained $2.56 to $26.56. Stocks of companies that are added to the S&P; 500 index often rise, as managers of mutual funds whose portfolios strictly match the makeup of the S&P; 500 must buy the shares. About $626 billion is indexed to the S&P; 500.

Market Roundup, D8