Iraq deal encourages bargain hunt rally on Wall Street

After its bleakest month in four years, Wall Street kicked off the new one yesterday in style, as bargain hunters took the weapons inspection deal between Iraq and the United Nations to send all the main market indices sharply higher.

How long this rally will last was another matter, with the economy still stuck in the doldrums, consumer confidence still ebbing, and no sign of a revival in corporate profits. But briefly, the September slump was forgotten as the Dow Jones Industrial Average soared 347 points by the close to stand at 7,939, a gain of 4.6 per cent. The technology-loaded Nasdaq Composite index rose 42 points, more than 3 per cent, while the broader-based S&P 500 jumped 4 per cent.

The big plus for the market was the Iraq agreement, after stocks had earlier drifted on a new government report that manufacturing output had contracted slightly in September. The Institute for Supply Management said its factory index had slipped to 49.5 from 50.5 in August, falling under the 50 mark that divides growth from shrinkage. It was the first such fall in eight months, and further evidence that the recovery in the US may be running out of steam.

But the decline was less steep than some analysts feared, and was accompanied by hints unemployment may be easing. That and renewed hopes that war in Iraq may be avoided was all that buyers needed to step in to take advantage of the bargains on offer.

A few moderately encouraging corporate statements helped as well, as Pepsi Bottling Group jumped nearly 7 per cent to $24.95 on a statement foreshadowing higher third-quarter earnings despite slower-than-expected growth in sales.

Sun Microsystems dispelled a little of the gloom in the hi-tech sector as the computer maker revised earnings for the latest quarter sharply higher, saying costs were lower than anticipated. Dell Computer stock also rose in after-hours trading, as the company raised sales projections slightly for its third fiscal quarter.

Despite the Iraq news, oil prices rose toward 19-month highs as the threat of a severe storm disruption to Gulf of Mexico oil and gas operations plagued the market. Oil stocks moved higher in their wake, with ExxonMobil up more than 6 per cent at $33.92. ChevronTexaco jumped $2.86, to $72.11, while ConocoPhillips added $1.87 to $48.11.