Stocks surged on Monday, sending the Dow to a record close on the first trading day of the fourth quarter, as investors bet that Wall Street may have seen the worst of the credit squeeze after three global banks detailed expected losses from the crisis.
The surge lifted the Nasdaq to its highest level in more than six and a half years as investors snapped up shares of technology bellwethers such as Apple Inc. and Intel Corp.
Citigroup Inc warned that its third-quarter profit would fall by 60 percent, but investors took comfort after its chief executive, Charles Prince, said the largest U.S. bank would return to a normal earnings environment in the fourth quarter. Its shares were among the biggest gainers on both the Dow and the S&P 500, rising 2.3 percent to $47.72.
Analysts said Citigroup's announcement, which coincided with similar warnings from Swiss banks UBS AG and Credit Suisse Group, suggested the losses that banks are taking from subprime mortgages and other risky loans will not have a lasting impact on the financial sector.
The piece of news that caused me to believe that companies are going to handle this (credit squeeze) well was Citigroup taking a very aggressive stance on re-pricing their portfolio, said Ernie Ankrim, chief investment strategist for Russell Investment Group in Tacoma, Washington.
I think this is the way we can expect financial institutions to go forward.
The Dow Jones industrial average finished up 191.92 points, or 1.38 percent, at 14,087.55. During the session, it surged to an all-time high of 14,115.51. Monday's close marks the index's 33rd record finish in 2007 and its 55th since it begun a record-setting streak about a year ago.
The Standard & Poor's 500 Index gained 20.28 points, or 1.33 percent, to end at 1,547.03. The Nasdaq Composite Index closed up 39.49 points, or 1.46 percent, at 2,740.99.
During the session the Nasdaq rose to its highest level since February 2001. Expectations of more interest rate cuts by the Federal Reserve, along with a drop of more than $1, or nearly 2 percent, in crude oil prices, also buoyed investors.
The market is getting increasingly convinced that the Fed will do whatever it has to do to contain the housing problem, said Jim Awad, chairman of W.P. Stewart & Co. Ltd., in New York.
Former Federal Reserve chief Alan Greenspan said at a Reuters event in London that there were signs the lending crisis could be coming to end as demand for more risky assets grows. He warned, however, that any speculative market fever must be allowed to run its course to enable a full recovery.
Shares of credit card issuer American Express Co climbed 2.1 percent to $60.63 on the New York Stock Exchange, while JPMorgan Chase & Co, the third-largest U.S. bank, gained 2.2 percent to $46.81. The Philadelphia KBW Bank Index was up 2.2 percent.
On the technology front, Apple, the maker of the iPod and the iPhone, finished up 1.9 percent to $156.33. Chip maker Intel gained 2.0 percent to $26.37.
Big manufacturers also showed strength, with shares of plane maker Boeing Co. ending as the top Dow performer, up 1.6 percent at $106.65. Diversified manufacturer United Technologies Corp finished up 2.0 percent at $82.07.
The Institute for Supply Management on Monday said its index of national factory activity for September fell slightly, and was just below economists' expectations, but the manufacturing sector still showed it was expanding.