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Market shows signs of another year-ending celebration

NEW YORK — During each of the past four years, Wall Street has celebrated the year's end with a big rally that bolstered returns and burnished the reputations of investors and money managers who might otherwise found themselves with poor showings.

Once again, the market appears to be turning a year of negative returns into something worth bragging about. If this week's important slate of economic reports continue to encourage Wall Street, this year's rally could give 2005 better returns than anyone thought were possible just a few weeks ago.

When the rally started in November, it seemed more of a psychological phenomenon — enough investors believed in the so-called "Santa Claus" rally to start buying stocks, and when enough people buy stocks, you have a rally.

Yet the foundation of this rally may have solidified last week when, in the Federal Reserve's Nov. 1 meeting minutes, monetary policy makers hinted that they may soon end their program of modest, incremental interest rate hikes. The market's been wary of the Fed's rate hikes, worried that while inflation would be kept in check, the more expensive lending rates would bring the economy to a standstill.

But with the Fed, for the first time, illustrating that it is indeed paying heed to the economy as well as inflation, the November rally regained momentum and surged higher. For the week, the Dow Jones industrial average rose 1.54 percent, the Standard & Poor's 500 index gained 1.6 percent and the Nasdaq composite index climbed 1.61 percent.

And with worries about interest rates mollified, the market could have room to extend its advance.

Economic data

The week ahead features an unusual concentration of important economic reports that will likely shape not only this week's trading, but the month's as well.

While inflation remains in check and energy prices have fallen somewhat, the labor market is still a question for many investors. That unease will make the Labor Department's job creation report critical to the continuation of this rally. Economists expect the economy to have created 220,000 new jobs in November, up from an anemic 56,000 jobs created in October.

Last month's predictions for job growth were high, as many on Wall Street underestimated the continuing impact of the Gulf Coast hurricanes, so any surprise in this number will likely be negative.

Also Thursday, the Institute for Supply Management will release its manufacturing index for November. Wall Street expects manufacturing growth to have slowed modestly, with the ISM index coming in at 58, down from a 59.1 reading in October.

On Wednesday, the Commerce Department will release its latest projection of the third quarter's gross domestic product. Economists predict the economy to have grown 4.1 percent for the July-September period, up from a previous estimate of 3.8 percent.

Earnings

While the calendar of economic releases is full, there are very few noteworthy earnings reports due out in the week ahead, most of which are in the retail sector.

Department store operator Dillard's Inc. is expected to lose 17 cents per share, compared to a 23 cents per share loss a year ago, when it reports its earnings Thursday morning. The stock has fallen 23 percent from its 52-week high of $28.60 on April 6, closing Friday at $21.91.

Specialty clothing retailer Chico's FAS Inc. has been a better performer, more than doubling from a 52-week low of $18.85 on Nov. 30, 2004, to close Friday at $45.72. The company is expected to post profits of 28 cents per share, up from 20 cents per share a year ago, when it reports after Tuesday's session.

Events

The monthly deluge of retail sales reports will take on added meaning as investors try to discern whether November's sales will translate into a strong December. The vast majority of sales reports will be out Thursday, with a few stragglers coming Friday and early next week.