A jittery Wall Street advanced Monday, reversing some of Friday's sharp losses as investors took a dismal new-home-sales report as a sign...

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NEW YORK — A jittery Wall Street advanced Monday, reversing some of Friday’s sharp losses as investors took a dismal new-home-sales report as a sign the Federal Reserve will lower rates this week.

The Dow Jones industrial average rose 176.72 to close at 12,383.89 after falling as much as 95 points in morning trading. On Friday, the blue-chip index tumbled 171 points after a two-day advance of more than 400 points.

Microsoft, one of the 30 Dow stocks, fell 22 cents to close at $32.72 a share. Boeing, also a Dow stock, gained 57 cents to $77.60.

Broader stock indicators also advanced Monday. The Standard & Poor’s 500 index rose 23.35 to 1,353.96, while the Nasdaq composite index rose 23.71 to 2,349.91.

On the surface, the advance appeared surprising after the Commerce Department reported sales of new homes in December fell by 4.7 percent and that 2007 new-home sales plunged by a record 26.4 percent compared to 2006. But while the report at first exacerbated the market’s concern that the housing and mortgage crises are causing a recession, it also raised hopes that the Fed might cut rates again by a wide margin to stoke the weakening U.S. economy.

“Anticipation of another Fed rate cut is the main magnet in the market today,” said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons.

He was skeptical the gains would stick — anything the Fed decides after its two-day meeting lets out Wednesday could be met with disappointment. If the rate cut is small or nonexistent, the market will likely be unsatisfied; if the cut is wide, the market may worry the economy is worse than it thought.

“If we do rally into a Fed rate cut, we have a lose-lose situation,” Goldman said.

And traders who bet on the Fed’s next move were pricing in a more than 80 percent chance of a half-point cut.

“Any less than that could be a problem,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research.