Tuesday, August 08, 2006

FED ACTION AND STOCK MARKET REFLECTION
MARKET KEEP A WARY EYES ON FED
Oil news worries investors as they hope for "pause" in interest rates.
Michael J. Martinez The Associated Press New York
Near-record oil prices following an Alaskan oilfield shutdown prompted stock investors to sell on inflation fears Monday, one day before the Federal Reserve's next decision on interest rates.
BP PLC said late Sunday it would shut down the Prudhoe Bay oilfield, which represents 8 percent of daily U.S. crude production, due to possible pipeline corrosion. Crude oil futures surged $2.22 in response to settle at $76.98 a barrel on the New York Mercantile Exchange — near the closing record of $77.03 and all-time intraday high of $77.40, both set July 14.
The stock market showed some resilience despite the higher oil prices, as many investors held out hope that the Fed would not raise rates today. Nonetheless, there are concerns that even if the Fed halts its rate increases, inflation may yet become a concern.
"Whether or not the Fed pauses in August is not as important as their plan going forward," said Russ Koesterich of Barclays Global Investments in San Francisco. "I don't think the market's going to get the kind of finality it's looking for. The concern is, yes, they pause in August, but raise the specter of raising rates in September."
According to preliminary calculations, the Dow Jones industrial average fell 20.97, or 0.19 percent, to 11,219.38. Broader stock indicators also dropped. Bonds lost ground as well in advance of the Fed meeting. The dollar gained against most major currencies.
The nation's benchmark interest rate now stands at 5.25 percent, and the Fed has raised rates by a quarter percentage point in each of its last 17 meetings dating back to June 2004. Ever since the Fed signaled six weeks ago that the economy was growing at a slower rate, and that it was taking this moderation into account, Wall Street has been parsing economic data and looking for signs of further slowing in hopes the Fed would stop raising rates.
Slowing job growth and a weaker-than-expected second-quarter gross domestic product have had many investors optimistic that the long-expected pause will come today. The market's modest move lower on very light trading volume showed investors' willingness to wait and see what the Fed will do.

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