Wall Street: Tuesday close

NEW speculation that Federal Reserve Board chairman Alan Greenspan is set to ride to the rescue with an interest rate cut sent shares higher.

The Dow Jones Industrial Average recouped most of Monday's steep drop to close the day higher by 230.46 points or 2.9% at 8274.09. The Nasdaq, which started the day near a five-year low, soared 53.54 points or 4.4% to 1259.55.

While markets closed off their highs for the day, it was an encouraging performance in what so far has been a brutal year. The Dow so far in 2002 is down 17%, while the Nasdaq has lost twice that.

Analysts said the growing likelihood of an official interest rate cut provided an excuse for investors to buy after three days of heavy losses. Two other factors may have played into the more positive psychology: there was no negative economic news for the first day in the past six trading days and the dollar staged a rebound on global foreign exchanges.

But the growing prospect that Greenspan and his colleagues at America's central bank would cut rates, possibly next week, provided much of the impetus for the day's advance. Interest rate futures were said to show a 30% chance that the Fed would cut rates at its meeting next week, with at least one rate decrease by year's end seen as a virtual certainty.

Lehman Brothers became the fourth investment firm in the past few days to forecast a rate cut by the end of the year as economists pondered what it would take to stem the slide in the economy and bolster executive, consumer and investor confidence.

'We have seen enough economic and financial pain and now see a 60% chance that the Fed will cut the funds rate in the next several months,' Lehman told its clients. 'Our main scenario is 25 basis point cuts (a quarter-percentage point) at the September, November and December meetings, pushing the funds rate down to 1%.'

The recovery in confidence helped all sectors of the market with 'smokestack' industries benefiting as much as any. Chemicals manufacturer DuPont surged $1.66 or 4.4% to $39.76, General Motors leapt $1.08 or 2.6% to $42.84 and General Electric vaulted $1.35 or 5% to $29.65.

Shares beaten down in recent sessions firmed, but some of their early-day gains eroded in afternoon trading. Walt Disney hung on to a gain of 11 cents or 0.8% to $14.38. AOL Time Warner surrendered its gains to close flat at $9.90. AT&T finished strongly, up 62 cents or 7% to $9.31.

Cisco Systems, recovered 71 cents or 6.3% to $12.07 before reporting quarterly results above expectations. Cisco shares were changing hands at $12.33 in extended hours' trading. Microsoft was up $1.68 or 4% to $45.67 and Intel gained $1.25 or 8% to $17.13.

Financials shared in the glory, with Citigroup bounding ahead $1.75 or 6% to $30.40 and JP Morgan benefiting by $1.30 or 6% to $23.65.