Stocks made a surprising advance Monday on the eve of the Federal Reserve's meeting, as some investors may have bet that the central bank is nearing the end of its credit-tightening cycle.
But trading volume remained extremely light, indicating most investors remain wary of the Fed's intentions.
The Dow Jones industrial average rose 198.41 points, or 1.9%, to close at 10,807.78.
The Nasdaq composite, helped by a late surge, rose 78.59 points, or 2.2%, to 3,607.65. Nasdaq plunged 7.5% last week as tech shares fell further.
Winners outnumbered losers Monday on the Big Board and on Nasdaq. But once again, volume was anemic. Nasdaq turnover was just 1.15 billion shares.
The Fed is widely expected to boost its benchmark "federal funds" rate, the overnight loan rate among banks, to 6.5% today from 6%.
Before the Fed meets, the government will this morning report on the trend in consumer price inflation in April.
Wall Street will be most interested today in the comments the Fed makes with its rate announcement. If the central bank signals that it is still highly concerned about inflation, investors may conclude the Fed isn't close to being finished with its rate increases.
Many investors just want to see more signs that the economy is slowing. So far, there aren't many.
The Fed itself said Monday that industrial production made its biggest leap in more than a year during April, as output at the nation's factories, mines and utilities rose by 0.9%.
"Concerns about future Fed policy moves should tend to abate as investors become more comfortable with the prospect that the economy will be slowing," said John H. Shaughnessy, chief investment strategist at Advest Inc.
In the bond market Monday, yields were mixed. Long-term yields eased somewhat, after surging in recent weeks. The 10-year Treasury note yield slid to 6.45% from 6.53% on Friday. But the yield was 6% on April 20.
In commodity trading, oil and gas prices continued to advance. Natural gas futures hit a 2 1/2-year high as a forecast for above-normal temperatures over much of the U.S. signaled higher demand for gas to generate electricity for air conditioning.
Among Monday's highlights:
* The Dow's advance was helped along by Philip Morris, which soared $3.06 to $27.38 on a report the company has offered to buy the food business of Nabisco Group Holdings. That could signal that Morris is far less worried about future tobacco-litigation costs.
Also, International Paper, another Dow stock, jumped $3.02 to $40.25 in the first trading session since the company won a bidding war for Champion International.
* Insurance stocks were strong as more investors bet that the companies will be raising rates significantly this year to offset poor returns. Progressive jumped $8.88 to $82. Safeco soared $2.31 to $23.44.
* Among Southland issues, health-care technology firm Syncor fell $2.88 to $41.75, though the company said Briefing.com, an investor Web site, had erroneously said brokerage J.P. Morgan had downgraded the stock. Morgan doesn't follow Syncor.
* Another Southland issue, Cheesecake Factory, rose $1.88 to $47.88. The firm announced a 3-for-2 stock split.
In the tech sector, Intel gained $3.13 to $118.13 and Sun Microsystems rose $2.81 to $84.31. But Cisco Systems added just 6 cents to $60.
Market Roundup, C14, C15