November 25, 2008 / 1:43 AM / 11 years ago

Fed plan boosts Dow, S&P as Cisco sinks Nasdaq

NEW YORK (Reuters) - The Dow and S&P 500 gained on Tuesday on optimism that the Federal Reserve’s latest rescue package could revive the sagging housing market and free up consumer lending.

Specialists work on the floor of the New York Stock Exchange in New York November 25, 2008. REUTERS/Lucas Jackson

The Dow had its first positive three-day run since late August, while the S&P rose three straight sessions for the first time since mid-September.

But the Nasdaq slid as technology stocks fell on more immediate concerns that demand may be weakening after bellwether Cisco Systems said it will close most of its operations in the United States and Canada for five days in an effort to cut costs.

Under the Fed’s latest plan, the U.S. central bank will buy billions of dollars worth of debt and mortgage-backed securities to increase the flow of credit for mortgages, student loans, car loans and credit cards.

The Fed’s move to generate consumer lending lifted financial stocks, with JPMorgan up nearly 8 percent at $29.77, and those of retailers, with Wal-Mart Stores, up 3.6 percent at $54.68.

“The Fed move today is another step to try to unfreeze the credit markets and provide more lending activity for consumers and businesses,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

“Part of the goal in buying mortgage assets from Fannie and Freddie is probably aimed at lowering mortgage rates, which down the road will help stabilize the housing market.”

The Dow Jones industrial average gained 36.08 points, or 0.43 percent, to 8,479.47. The Standard & Poor’s 500 Index rose 5.58 points, or 0.66 percent, to 857.39. But the Nasdaq Composite Index shed 7.29 points, or 0.50 percent, to 1,464.73.

In spite of the optimism stirred by the Fed’s plan, the data continued to paint a poor picture of the economic climate.

A government report showed the U.S. economy contracted at a faster rate in the third quarter than originally estimated as consumer spending fell at the sharpest rate in 28 years.

The tech-heavy Nasdaq was weighed down as the first plant shutdown in Cisco’s history raised concerns about demand, ending the Nasdaq’s two-day winning streak.

Cisco’s shares tumbled 6 percent to $15.42, while Microsoft’s stock slid 3.4 percent to $19.99 and shares of Apple, the maker of the iPhone, declined 2.3 percent to $90.80. Shares of BlackBerry maker Research In Motion slid 8.3 percent to $41.50.

Shares of computer maker Hewlett-Packard dropped almost 6 percent to $33.60 on the New York Stock Exchange despite posting a solid quarterly profit report and giving an upbeat outlook late Monday. The stock was the largest weight on the Dow and helped limit its advance.

The semiconductor index was down 2.2 percent.

Technology is considered to be more vulnerable to slowing consumer and business spending, as well as the downturn from abroad.

Before Wall Street’s opening bell, the Commerce Department said third-quarter gross domestic product shrank 0.5 percent on a sharp drop in consumer spending. That was a downward revision from the government’s first estimate that GDP had contracted 0.3 percent in the third quarter.

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An S&P index of financial stocks climbed 2.5 percent.

Volume was active on the NYSE, where about 1.88 billion shares changed hands, near last year’s estimated daily average of 1.90 billion. On the Nasdaq, about 2.50 billion shares traded, above last year’s daily average of 2.17 billion.

Advancers outnumbered decliners on the NSYE by a ratio of 2 to 1, while on the Nasdaq, about five stocks rose for every four that fell.

Editing by Jan Paschal

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