Stocks Rally Modestly Before Fed Rate Session

Wall Street put aside its worries over interest rates Monday and managed a halfhearted rally on the eve of a key Federal Reserve meeting.

The buying was fueled by positive economic data. The Commerce Department reported that construction spending jumped 1.5% in March from February to a seasonally adjusted annual rate of $944.1 billion, the highest level on record. The percentage increase was three times what economists had expected.

Manufacturing growth slowed slightly in April because of higher costs for materials, according to the Institute for Supply Management’s manufacturing index, but the growth was still considered strong for the month.

Some analysts said the rally, which came on tepid volume, was less than persuasive on the heels of last week’s heavy selling and with investors nervously awaiting a change in the Fed’s stance on interest rates.

“The economic data was good, but not great,” said Russ Koesterich, U.S. equity strategist at State Street Corp. “With the low volume, this rally is not really convincing.”

The Dow Jones industrial average rose 88.43 points, or 0.9%, to 10,314.00, after falling 2.4% last week. The Standard & Poor’s 500 index gained 10.19 points, or 0.9%, to 1,117.49, after last week’s 2.9% drop. The Nasdaq composite index was up 18.57 points, or 1%, at 1,938.72. The tech-heavy barometer skidded 6.4% last week -- its biggest weekly loss in two years.

Advancing issues outnumbered decliners by nearly 3 to 2 on the New York Stock Exchange.

Although a rate hike isn’t expected at today’s meeting, the Fed’s statement after the gathering was expected to be thoroughly dissected by Wall Street.

As the economy continues to grow at a rapid pace, most investors expect a rate increase by August to combat inflation.

“The Fed is going to telegraph its intentions for the market in its statement tomorrow,” said Keith Keenan, vice president of institutional trading at Wall Street Access. “I can’t imagine they’d shock the market with a hike ... but rather they’ll get everyone ready for something in June or August.”

Interest rate concerns kept the market down most of April, causing many investors to ignore very strong corporate earnings, analysts said.

Bond yields have jumped in the last few weeks on strong economic reports. The yield on the benchmark 10-year Treasury note was little changed Monday, closing at 4.50%, down from Friday’s close of 4.51%.

In other highlights:

* A weekend attack at a Saudi Arabian refinery helped push near-month crude futures up 83 cents a barrel to a 13-year high of $38.21 on the New York Mercantile Exchange. Gasoline futures also jumped.

* Warren E. Buffett, chairman of Berkshire Hathaway, told investors over the weekend that the holding company already had shifted its assets in anticipation of rising interest rates. After its annual meeting this weekend, class A shares of Berkshire Hathaway fell $490 to $92,900 a share.

* Sara Lee announced it had hired former PepsiCo executive Brenda Barnes as president and chief operating officer. The food producer and apparel maker climbed 29 cents to $23.37.

* El Paso fell on news that some of its employees used aggressive and unsupportable methods to book natural gas reserves at the pipeline operator. El Paso shares shed 13 cents to $6.88.

* InterActiveCorp, which runs Ticketmaster and the Home Shopping Network, was down $1.19 at $31.06 even after it swung to a profit in the first quarter based on strong growth in its core businesses.

* Adobe Systems adjusted its second-quarter outlook, saying increased sales of its document reader and management software would help the company exceed previous estimates. Adobe jumped $2.50 to $44.