Wall Street on the up as investors pin hopes on economic package

US INVESTORS, anxious to put money to work at the start of the year, pinned their hopes on the Bush administration’s expected $600 billion economic stimulus package, and sent Wall Street into rally mode.

In an address in Chicago today, US President George W Bush is expected to propose cutting taxes on dividends, speeding up cuts in income tax rates, and implementing new spending measures.

Investors have also been heartened by recent data pointing to a strengthening economy.

John Forelli, portfolio manager at Independence Investments LLC, said that after a brutal three-year string of stock market declines, optimism is growing for a pickup in business spending and an economic rebound.

Shares of local telephone companies, including Verizon Communications, boosted the Standard & Poor’s 500 index after a report said that US regulators will probably stop making local phone companies rent their networks to rivals, a move that could reduce competition and price-cutting.

The Dow Jones Industrial Average was up 171.88 points, or 2 per cent, at 8,773.57. The broader Standard & Poor’s 500 gained 20.44 points, or 2.25 per cent, to 929.03. The technology-laced Nasdaq Composite Index was up 34.18 points, or 2.46 per cent, at 1,421.26.

President Bush is expected to propose the elimination of taxes on dividends paid to shareholders, as well as accelerating reductions in income tax rates for all income brackets. The package is also expected to allow companies to quickly write off more of their investments.

Administration officials believe elimination of taxes on dividends, which will cost as much as $300 billion over 10 years, could boost stock prices by 10 per cent or more.

Stocks of companies that pay dividends jumped, including investment bank JP Morgan Chase, which advanced $1.93, or 7.4 per cent, to $27.87. JP Morgan’s yield at its current share price is 5.24 per cent.

Shares of local telephone companies surged, driving gains in the S&P 500. The possible plan, would force new providers to pay higher prices to rent network access or buy more of their own equipment.

Verizon soared $3.62, or 9 per cent, to $44.07, while BellSouth jumped $2.74, or 10 per cent, to $29.86. SBC Communications advanced $2.31, or 8 per cent, to $31.19, and Qwest Communications International rose 55 cents, or more than 10 per cent, to $5.93.

AT&T was down 19 cents to $27.47 after reports that the largest US long-distance telephone company will take a $240 million restructuring charge as it cuts about 3,500 jobs amid shrinking revenue and stiff competition.

Chip equipment makers helped bolster the Nasdaq, after Deutsche Bank upgraded its rating on the sector to "buy". Applied Materials jumped 88 cents, or 6 per cent, to $15.41, Novellus Systems rose $2.37, or 7 per cent, to $33.57, and Lam Research surged $1.06, or 9 per cent, to $12.57.

Shares of Philip Morris were the most active on the NYSE, falling 38 cents to $39.42. Analysts pinned the decline on worries that the cigarette maker might cut prices on at least some of its brands in the United States to compete with lower-priced generic brands.

Online hotel reservations company Hotels.com tumbled $15.02, or 25 per cent, to $44.02 after saying that it expects to post lower-than-projected revenue and earnings in the fourth quarter, due to a slump in worldwide hotel occupancy and higher expenses.

The latest economic data showed a decline in the US services sector from previous levels, but it was above a benchmark level, suggesting that growth in some segments of the US economy is still on track.

EUROPE’S leading shares extended their run of gains to five days as investors snapped up potential turnaround stocks such as Fiat and France Telecom.

Insurance stocks, hit by Britannic, had a grim day and airlines also sank after Dutch carrier KLM issued a profit warning.

The FTSE Eurotop 300 index was up 0.26 per cent at 890.82, while the narrower DJ Euro Stoxx 50 index jumped 1.11 per cent to 2,529.86.

ASIAN stock markets closed mostly higher, with the key index rising in Tokyo on the first trading day of the new year.

Japan’s benchmark 225-issue Nikkei Stock Average rose 134.38, or 1.57 per cent, to 8,713.33.

In Hong Kong, the key Hang Seng Index rose 82.11, or 0.86 per cent, to close at 9,665.96.