Stocks push September rally into fourth week; drive S&P 500 to highest level in 4 months

Stocks extend Sept. rally; S&P breaks out of range

NEW YORK — Stocks extended their September rally into a fourth week Monday as investors hoped for more moves by the Federal Reserve to prop up the economy.

Buying accelerated after the Standard & Poor’s 500 index broke through the high end of its recent trading range. Technical analysts see that as a hopeful sign for the market.

The S&P 500, the index most closely tracked by professional investors, rose to its highest level since May 18. The Dow Jones industrial average rose nearly 110 points in afternoon trading. Buyers were also encouraged by an announcement from a group of economists declaring that the most recent recession ended in June 2009.

There is a growing expectation that the Fed’s rate-setting committee could relaunch programs to buy Treasurys and mortgage bonds in an effort to further stimulate the struggling economy. At the very least, it might hint at future plans to make such moves following its one-day meeting Tuesday.

“The Fed will hint at it, put it on the table, but not do anything,” said Brian Gendreau, a market strategist at Financial Network Investment Corp.

While many economic indicators have topped forecasts in recent weeks, propelling stocks higher, the economy is far from strong. If the Fed starts buying bonds again it could drive interest rates lower, enabling companies and consumers to get cheaper loans. The Fed had a similar bond-buying program in place earlier this year. Treasury prices were little changed Monday.

In corporate news, IBM Corp. said it would buy data storage provider Netezza Corp. for about $1.7 billion in cash. Investors see acquisitions a sign companies are more comfortable using their spare cash built up during the recession in order to expand.

“At some point, if growth continues you have to get that money your sitting on working for you,” said Cameron Short, a senior vice president at Stifel Nicolaus.

The Dow rose 109.67, or 1 percent, to 10,717.52 in afternoon trading. The Dow has risen three straight weeks and is up 7 percent so far this month. However it’s still more than 4 percent below its high for the year.

The Nasdaq composite index rose 25.32, or 1.1 percent, to 2,340.93.

The S&P 500 rose 12.02, or 1.1 percent, to 1,137.61.

The S&P 500 climbed solidly above the key technical level of 1,131 Monday morning, the high end of its recent trading range. The S&P briefly crossed that barrier on Friday for the first time since June 21, but not for long enough to convince analysts that the market had enough momentum to surge higher. Many automatic buy and sell orders are set around market milestones such as these, and investors watch those levels closely for clues about which way the market may go next. Closing significantly above 1,131 Monday could provided enough momentum to drive stocks even higher in the coming days.

About four stocks rose for every one that fell on the New York Stock Exchange, where volume came to 453.6 million shares.

Investors were also encouraged by a softer stance in recent weeks by President Barack Obama’s administration about tax and business-related programs. Keith Goddard, co-manager of the Capital Advisors Growth Fund, said a shift in policy could mean the Bush-era tax cuts will be extended. That would help dividend-paying stocks, which have been in “no man’s land” recently because investors are uncertain the tax rate they’ll have to pay on the dividends, Goddard said.

Extending the tax cuts and announcing other policies like a payroll tax holiday could be “worth a 10 percent move in the stock market,” Goddard said.

Traders are watching Obama’s town-hall meeting Monday to see if he provides any further clues about those policies.

Stocks started the month with a big surge, but have been climbing at a slower pace lately. The monthlong rally is especially surprising because September is historically a terrible month for stocks.

A slower, steady rise is more encouraging because it means traders are reacting to a consistent stream of upbeat news and not wildly making bets based on an individual economic report or piece of news, said Daniel Penrod, a senior industry analyst at the California Credit Union League. It is also a sign there is less uncertainty in the market, he said.

“We need more tortoise than hare in the market,” Penrod said.

Investors have been encouraged enough by economic reports that have modestly beaten forecasts to send stocks higher because it has lessened fears that the economy might fall back into recession. Reports on manufacturing and jobs have been the primary drivers of the market. If the Fed were to start buying bonds it could quell fears of a second recession even more.

IBM shares rose $1.24 to $131.43. Netezza shares rose $3.21, or 13.1 percent, to $27.81.

Bond prices barely budged as investors await word Tuesday from the Fed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.72 percent from 2.74 percent late Friday.

The dollar weakened against foreign currencies as expectations grew for the central bank to start buying bonds again.