FED’S LATEST RATE HIKE SENDS STOCKS REELING

INVESTING REPORT S T O C K S

U.S. stocks fell yesterday after the Federal Reserve raised the benchmark interest rate to its highest level since 2001 and gave no indication it’s near the end of its rate-increase campaign.

Shares of companies sensitive to higher lending rates, such as homebuilders Centex Corp. and D.R. Horton Inc. (DHI/ NYSE), declined after the Fed’s rate decision. Centex (CTX/NYSE) slid 2.4% to US$64.95, while D.R. Horton fell 5.4% to US$34.33. The Dow Jones index of homebuilders fell almost 5%, its biggest percentage drop since Oct. 4, 2004.

Wal-Mart Stores Inc., the world’s largest retailer and a Dow component, fell to near a fiveyear low after the Fed’s comments. The stock ( WMT/NYSE) closed at US$43.21, down 1.8%, or US80¢, after earlier hitting a session low of US$43.10.

“Stocks are clearly under pressure,” said Tony Dwyer, chief equity strategist at FTN Financial. “ You would expect the higher rates to negatively impact the consumer.”

The Dow Jones industrial average was down 76.11 points, or 0.7%, to end at 10,481.52. The Standard & Poor’s 500 index was down 9.68 points, or 0.8%, to finish at 1221.34. The technologylaced Nasdaq composite index was down 13.93 points, or 0.7%, to close at 2131.33.

The Fed raised the fed funds rate for the 11th straight time since June 30, 2004, bringing it up a quarter-percentage point to 3.75%, and saying Hurricane Katrina will give the broad economy only a temporary setback.

Shares of mortgage lenders, including government-sponsored

Fannie Mae and Freddie Mac, also declined. Fannie Mae (FNM/NYSE)

dropped 1.9%, or US88¢, to US$46.66, and Freddie Mac (FRE/NYSE)

fell 2.7%, or US$1.59, to US$57.50.

U.S. crude oil futures ended down yesterday after gaining more than US$ 4 on Monday. October crude futures, which expired at the close of yesterday’s regular NYMEX trading, fell US$1.16 to settle at US$ 66.23 per barrel. Toronto’s key stock index shed more than 1% yesterday as Ottawa’s decision to suspend tax rulings on income trusts rattled shares of companies planning or rumoured to be converting to trusts.

The Standard & Poor’s/TSX composite index fell 121.21 points, or 1.1%, to 10,903.52. The blue-chip S&P/TSX 60 index fell 5.33 points, or 0.9%, to 613.75.

“One of the most important issues was Ottawa’s income trust ruling and the fact that they will not be providing tax rulings in advance,” said Elvis Picardo, chief market strategist at Global Securities Corp.

“ That has knocked down a number of companies about which there is speculation that they could potentially convert to income trusts and a number that have announced intentions.”

The Toronto market was also hurt by the U.S. Federal Reserve’s decision to raise interest rates with no indication it’s near the end of its rate-increase campaign. Higher rates raise corporate borrowing costs.

The materials sector, home to gold-mining shares, dropped nearly 2%, while the information technology group was next in line with a 1.6% drop. Eight of the TSX’s 10 subindexes ended lower.

Reuters