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Dow surges above 14,000

Stocks rally as worries over credit crisis abate

NEW YORK — Wall Street began the fourth quarter with a huge rally Monday, sending the Dow Jones industrial average above 14,000 and well into record territory for the first time in 2 1/2 months. Stocks were buoyed by a growing belief that the worst of the credit crisis has passed.

While the beginning of the new quarter was an incentive for institutional investors to buy, they also seemed to be motivated by a sense that banks and other financial companies generally weathered the recent credit market upheaval. Both Citigroup and Switzerland's UBS AG issued third-quarter profit warnings, but indicated the current period might see a return to normal earnings levels.

Meanwhile, the market was optimistic that new economic data might nudge the Federal Reserve toward another interest rate cut at its Oct. 30-31 meeting. The Institute for Supply Management said the manufacturing sector grew in September at the slowest pace in six months; the trade group said its index of manufacturing activity registered at 52.0 in September, below forecasts for a reading of at least 52.5.

"People are getting more confident there is going to be an October rate cut," said John C. Forelli, portfolio manager for Independence Investment. "To some

degree, it looks like Citi kitchen-sinked the quarter, and that from here going forward will be calmer. That's underpinning the financials."

Enthusiasm about acquisition activity picked up after Nokia unveiled an $8.1 billion offer to buy navigation-software maker Navteq Corp. The deal was seen as a signal that corporations are feeling comfortable in making big moves despite recent market turbulence.

The Dow rose 191.92, or 1.38 percent, to 14,087.55.

The blue-chip index surpassed its closing record of 14,000.41 set in mid-July, and moved into record territory, rising as high as 14,115.51 and eclipsing its previous intraday high of 14,021.95 set July 17.

Broader market indexes also rose sharply. The Standard & Poor's 500 index rose 20.29, or 1.33 percent, to 1,547.04, nearing its all-time trading high of 1,555.90, also reached in mid-July. The Nasdaq composite index rose 39.49, or 1.46 percent, to 2,740.99; the tech-laden index remains well below its high of 5,048.62, reached in 2000 when it was bloated by the dot-com boom.

The Dow finished a turbulent third quarter with a 3.6 percent gain, after the Fed eased investor concerns over the credit and housing markets by lowering key interest rates half a percentage point.

Arthur Hogan, chief market analyst at Jefferies & Co., said the biggest tipping point of the day was financial stocks. For the first time, Citi — considered a barometer for the banking industry — is giving some real numbers about the extent of its damage, he said.

"If they are giving us worst-case scenario, then market participants are feeling that most of the stuff we've worried about since July will remain contained," he said. "That's the celebration the market is putting on right now, and the take away is that the black hole of not knowing finally has some numbers around it."

Financial stocks — from brokerages to retail banks — slumped during the third quarter as uncertainty grew about the extent of losses from the credit and subprime mortgage turmoil. Comments from Citi Chief Executive Charles Prince that he expects to "return to a more normal earnings environment" during the fourth quarter put investors more at ease.