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|NEW YORK (CNNfn) - Federal Reserve Chairman Alan Greenspan said Tuesday that the central bank is starting to see signs of slowing growth in the U.S. economy, and must be alert to the possibility that falling stock prices and rising credit spreads could lead to "excessive softening" in demand.
Addressing a group of community bankers in New York, Greenspan said the economy already has slowed substantially from its breakneck pace last year and earlier this year, even though consumer confidence still is holding up pretty well.
"Still, in an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending," the Fed chief said.
Greenspan's comments come against the backdrop of a radical reassessment of U.S. economic risks in financial markets, which has substantially raised the expectations of cuts in interest rates in the months ahead to ensure the current economic slowdown does not turn into a recession.
Stocks surged in the wake of Greenspan's remarks as investors concluded that the Fed will ease off from its inflation-fighting stance by shifting its assessment of economic conditions away from concerns about overheating and toward a more balanced view of economic risks that would include acknowledging the risks of excessive slowing.
The Fed's policy-setting arm, the Federal Open Market Committee, next meets to discuss rates in two weeks. While it is expected to leave key short-term rates unchanged at that time, many on Wall Street believe it will lower rates early next year.
|NEW YORK (CNNfn) - U.S. stocks surged at midday Tuesday, as investors cheered Federal Reserve Chairman Alan Greenspan's acknowledgement that the economy's growth rate is cooling as well as a Florida's judge's ruling that could bring closer an end to the presidential stalemate.
Just before 11:30 a.m., the Nasdaq composite index rose 193.43 points, or 7.3 percent, to 2,748.94. The Dow Jones industrial average gained 287.05 to 10,844.49 while the S&P 500 jumped 38.28 to 1,365.25.
The economy, Greenspan said, "has lost some momentum." His speech to a New York audience confirmed some market fears, but also opened the door to possible loosening of monetary policy that could stem the tide of corporate result warnings haunting the markets this fall.
"This (Greenspan speech) is certainly a dose of good news, coupled with the fact that we may be getting closer to a resolution to the election," Walt Czaicki, senior portfolio manager at Banc of America Capital Managament, told CNNfn's In the Money. (293K WAV) (293K AIFF)
In election news, Republican candidate George W. Bush secured a major legal victory in his quest for the White House. Many of the tobacco, oil and drug stocks seen helped by a potential Bush administration rose.
For a market worried about White House uncertainty and a slowdown economy, the two developments were a big plus.
Also contributing to the rally was a drop in crude oil futures. The price of light crude for January delivery fell 79 cents to $30.43 a barrel.
More stocks rose than fell. Advancing issues on the New York Stock Exchange beat declining ones 1,932 to 747 on volume of 549 million shares. Nasdaq winners topped losers 2,565 to 979 as more than 984 million shares changed hands.
In overseas markets, Asia's major exchanges were mixed while Europe's largest markets moved higher. The dollar rose against the euro but fell versus the yen. Treasury securities edged higher.
In the latest news out of Florida, Leon County Circuit Court Judge Sanders Sauls denied Vice President Al Gore's request for a limited vote recount. The decision, if it holds, means that Bush's lead in the state remains intact and makes him the likely winner of the state's crucial 25 electoral votes.
But Gore has appealed the decision to Florida's Supreme Court. That body previously extended a recount deadline that narrowed Gore's disadvantage -- but that ruling was set aside Monday by the U.S. Supreme Court pending further clarification.
Many of the so-called "Bush stocks," or companies seen better off if he occupies the White House, rose.
Philip Morris(MO: Research, Estimates) rose $1.13 to $38.81, Exxon Mobil (XOM: Research, Estimates) climbed $1.13 to $91.06.
Two Nasdaq stocks that are also Dow components rose. Microsoft (MSFT: Research, Estimates), whose antitrust troubles are seen as possibly easing under Bush, jumped $3.88 to $60.25. Intel (INTC: Research, Estimates) gained $3.38 to $36.25.
The Greenspan and election news were enough to offset warnings from 3Com (COMS: Research, Estimates), the latest major company to say quarterly financial results will slow.
3Com (COMS: Research, Estimates) tumbled $4.13 to $9.31 after saying weaker-than expected revenue would mean wider-than anticipated losses for the networking equipment maker.
Blaming slowing capital equipment spending by telecom companies, 3Com said it expected losses of 19 cents to 23 cents in its fiscal second quarter, compared with a previously targeted net loss of 7 cents to 9 cents per share.
Warnings like this one are part of the reason investors listened carefully to Greenspan.
The Fed chairman acknowledged the stock market's losses but drew a distinction between today's economy and the financial turmoil of the fall of 1998.
Investors sifting his words for any clues that interest rates, which rose steadily in 1999 and 2000, liked what they heard.
"Still, in an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending," Greenspan told a conference sponsored by America's Community Bankers in New York.
In the latest data, factory orders for October fell 3.3 percent, nearly in line with expectations of a 3 percent decline and compared with a revised 1.1 percent increase in September, according to the Commerce Department.
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