Wall Street advanced Monday as investors undeterred by record oil prices speculated that the Federal Reserve will cut interest rates later this week to boost the slow economy and lure more buyers into the troubled credit markets.
The Fed begins its two-day meeting Tuesday, and the market widely expects a rate reduction the following day. Central bankers lowered rates by a half-point in September for the first time in four years after the credit markets seized up and posed the threat of recession. The economy has a hard time growing if companies can't borrow and lend money.
But with energy prices soaring to new records, the risk of inflation -- which tends to accelerate when rates are low -- may give policy makers some pause. Crude oil futures soared above $93 a barrel for the first time on the New York Mercantile Exchange Monday after a storm led Mexico's state oil company to suspend about a fifth of its oil production.
The Fed remains concerned about inflation but is likely to lower the target federal funds rate by a quarter-point due to overriding credit worries, said Scott Wren, equity strategist for A.G. Edwards & Sons.
"It's kind of a psychological sort of move," Wren said. "A 25 basis-point cut isn't going to ease the credit crunch. But it'll give the Fed a little more time to figure out what's going on with the economy."
The Dow Jones industrial average rose 63.56, or 0.46 percent, to 13,870.26.
Broader stock indicators also gained. The Standard & Poor's 500 index rose 5.70, or 0.37 percent, to 1,540.98, while the Nasdaq composite index rose 13.25, or 0.47 percent, to 2,817.44.
Treasury bond prices rose modestly as bond investors grew more cautious in their rate expectations. The yield on the 10-year Treasury note, which moves inversely to the price, slipped to 4.38 percent, from 4.41 percent late Friday.
The dollar was mixed against rival currencies, while gold prices rose to 27-year highs.
Light, sweet crude for December rose $1.67 to settle at a record $93.53 a barrel on the New York Mercantile Exchange after rising as high as $93.80.
Though record-high crude prices and rising metal prices hurt consumers, they helped boost the stocks of companies who sell commodities. ExxonMobil Corp. and Alcoa Inc. were among the biggest gainers in the Dow.
Alcoa rose $1.08, or 2.7 percent, to $40.43, and ExxonMobil rose $1.40 to $93.61.
In addition to the hope for a rate cut, an earnings report from electronics retailer RadioShack Corp. encouraged Wall Street. RadioShack, after swinging to a third-quarter profit thanks to reduced expenses and improved inventory, rose 80 cents, or 4.1 percent, to $20.42.
Worries about Office Depot Inc.'s results, however, caused the retailer's shares to drop $2.86, or 14.1 percent, to $17.43. Three analysts downgraded the stock after the company said it will postpone its third-quarter earnings report.
Earnings so far have generally shown weakness in the financial and housing sectors but strength in others.
"It's a stock-pickers' kind of market. If you're in the right sectors, you're going to do well, but if you're in the broader market, you've got exposure to those weak sectors," said Rob Lutts, president and chief investment officer of Cabot Money Management.
Nearly 300 companies in the S& P 500 reported third-quarter earnings by last Friday, and on average posted a profit decline of 4.9 percent, said Nick Raich, director of equity research for National City's private client group. The figure was wider than the consensus, but primarily because of the dismal results at companies with exposure to housing and the credit markets. Eight of the S& P 500's 10 sectors reported average earnings gains of 8 percent or more, and five of those sectors posted double-digit gains.
In other corporate news, investors awaited the fate of Merrill Lynch & Co.'s chief executive Stan O'Neal, who was reportedly close to resigning amid broad criticism for leading the company to its biggest quarterly loss in its 93-year history. Merrill shares rose $1.33, or 2 percent, to $67.42.
Trading was relatively light Monday. Consolidated volume came to 3.02 billion shares, down from 3.51 billion Friday. Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange.
The Russell 2000 index of smaller companies rose 0.33, or 0.04 percent, to 821.72.
In Asian trading, Japan's Nikkei stock average rose 1.17 percent, and Hong Kong's Hang Seng index rose 3.89 percent. In European trading, Britain's FTSE 100 rose 0.67 percent, Germany's DAX index advanced 0.76 percent, and France's CAC-40 added 0.71 percent. ( AP )