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US investors to keep close eye on September job report

Business Materials 30 September 2007 08:17 (UTC +04:00)

( Reuters ) - After posting solid gains in September, US stocks are once again near all-time highs. But a significant hurdle in the form of monthly payroll data must be cleared this week if the advance is going to carry over to the fourth quarter.

All three major US stock indexes booked strong gains for September. The Dow Jones industrial average climbed four per cent for the month, while the Standard & Poor's 500 Index advanced 3.6 per cent and the Nasdaq Composite Index rose 4.1 per cent. It was the best September for the S& P since 1998.

This coming Friday, the September payroll data is due. In a Reuters poll, the median forecast has 94,000 jobs being added to non-farm payrolls, and the jobless rate rising to 4.7 per cent from 4.6 per cent.

In contrast, August non-farm payrolls shrank by 4,000 jobs, a surprise that undoubtedly persuaded the Fed to cut interest rates by one-half percentage point on September 18.

"The payroll report is the major thing that a lot of investors are going to focus on, particularly since the August number was so far below expectations," said Brandon Thomas, chief investment officer of Portfolio Management Consultants, a unit of Envestnet Asset Management, in Chicago.

Thomas noted that recent declines in weekly jobless claims may be signalling a healthy jobs report for September. He expects 115,000 new jobs and a jobless rate unchanged at 4.6 per cent.

"If the numbers are too strong, the Fed may take a wait-and-see attitude," Thomas said. That would disappoint those hoping for another rate cut at the October 30-31 policy meeting.

For the week, the Dow average gained 0.6 per cent, the broad S& P 500 rose 0.1 percent, and the Nasdaq climbed 1.1 per cent.

The stock market's strong showing in September helped it recover from the downturn in July and August, which was driven by turmoil related to weakness in the housing sector and rising defaults on risky subprime mortgages.

For the third quarter, the Dow gained 3.6 per cent, the S& P 500 added 1.6 per cent and the Nasdaq rose 3.8 per cent.

September's gains came mostly after the Fed's rate cut. Consequently, the stock market psychology seems to have improved despite a struggling housing sector and lingering concerns about borrowers having trouble finding willing lenders.

For the year to date, the Dow is up 11.5 per cent, while the S& P 500 is up 7.7 per cent and the Nasdaq is up 11.9 per cent.

"The mood I feel is that stocks are modestly valued and there is much more on the upside," said Donald Gimbel, senior managing director with Carret and Co. LLC, which is based in New York. "Although there might be a little bump in October, the fourth quarter is going to be quite good and the market should be at all-time highs at the end of the year."

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