Dow passes 14,000 once again

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 2½ months.

While the beginning of the new quarter was an incentive for institutional investors to buy, the market was also encouraged that the worst might be over from the summer's credit and stock market turmoil.

During the session, the Dow surged to an all-time high of 14,115.51 before settling at a record 14,087.55, up 191.92 points.

Both Citigroup, the largest U.S. bank by market value, and Switzerland's UBS AG, the world's largest wealth manager, issued third-quarter profit warnings, but indicated the current period might see a return to normal earnings levels.

In addition, new economic data revealed Monday might nudge the Federal Reserve toward another interest rate cut at its Oct. 30-31 meeting.

The market grew more optimistic that the Fed might lower rates to boost the economy after a report showed that manufacturing grew in September at the slowest pace in six months. The Institute for Supply Management said its index of manufacturing activity registered at 52.0 in September, below forecasts for a reading of at least 52.5. However, readings over 50 indicate economic expansion.

"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."

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 number 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.

And, since analysts believe financials must lead a broader Wall Street advance, a rally in bank and brokerage stocks was greeted with enthusiasm. Citigroup shares rose $1.05, or 2.3 percent, to $47.72. Countrywide Financial Corp., the nation's largest home loan provider, rose 95 cents, or 5 percent, to $19.96 on the potential of an easing in subprime loan jitters.