Stocks Rally on Investor Optimism

N E W  Y O R K, May 16 -- Stocks rocketed higher with the Dow Jones industrial average risingto an eight-month high and closing above 11,000 for the firsttime since late last summer, as investors reasoned fiveinterest-rate cuts by the Federal Reserve all but ensure areturn of strong corporate-profit growth.

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The blue-chip Dow average shot up 343.15 points, or 3.16percent, to 11,216.12, according to the latest data. Thatmarked the Dow's highest close since Sept. 12, and the firstfinish above 11,000 since Sept. 14. It was the Dow'sfifth-largest point gain ever.

The Nasdaq Composite Index jumped 80.94 points, or 3.88percent, to 2,166.52. The benchmark Standard & Poor's 500 Indexleaped 35.56 points, or 2.85 percent, to 1,285.00, the highestclose in four months.

The rally took root about one hour into the trading day,when early bearishness on the Fed's warning late Tuesday abouteconomic weakness evaporated with buying that snowballedthrough the day, a delayed positive response to the centralbank's fifth rate cut this year. The serial reductions in ratesare part of the Fed's campaign to prevent the flagging U.S.economy from slipping into recession by lowering borrowingcosts for businesses and consumers.

"There is a ton of money out there and whenever people seea rally, they say, 'Hey, maybe I better put some money to workhere.' That and a subway token will get you a ride uptown,"said Ned Collins, a trader at Daiwa Securities America,skeptical of the rally one day after the latest cut inborrowing costs. "I just don't believe we have come to the endof profit warnings and I think earnings are going to be key."

Bullish comments out of software maker BEA Systems Inc.,chip equipment maker Applied Materials Inc. and doughnut makerKrispy Kreme Doughnuts Inc. helped boost sentiment a day afterthe Fed slashed rates by 50 basis points.

A milder-than-expected read on inflation also lifted WallStreet's mood. The Consumer Price Index, a key inflationindicator, rose 0.3 percent in April, less than the 0.4 percentgain expected by economists, according to the Labor Department.Tame inflation could clear the way for the Fed to continue itsseries of aggressive rate cuts, analysts said.