"Everyone is counting on (Fed Chairman) Alan Greenspan lowering interest rates,'' said Joe Joshi, chief investment officer at Systematic Financial Management in Fort Lee, New Jersey, which oversees $1bn. "That will show he will not let a recession happen.''
Mr Greenspan told the US Senate on Wednesday that deteriorating economies abroad "have increased the possibility that the slowdown in the growth of the US economy will be more than sufficient to hold inflation in check". That suggests he will push for a reduction in the overnight bank lending rate from its current 5.50 per cent at Tuesday's meeting of the Federal Open Market Committee.
An interest-rate cut "will stimulate the economy", allowing corporate profits to grow, said Martin Sass, president of MD Sass Investor Services, which manages $13bn.
But gains this week may be limited by concern that the market has more unpleasant surprises in store. On Friday Coca-Cola warned that second- half earnings would be disappointing because of weak currencies and economies in Asia, Latin America and Eastern Europe.
"There are many problems plaguing the market that are expected to prevail,'' Mr Sass said. "Corporate earnings estimates keep getting slashed and there are growing concerns about credit quality in and out of the US.''
Analysts expect year-over-year operating earnings of companies in the S&P 500 to shrink 1.4 per cent in the third quarter, according to a survey by First Call Corp. The estimate was lowered from negative 1.2 per cent yesterday and a 10 per cent gain forecast at the start of the current quarter.
While major indexes rose, declining shares outnumbered advancers by a 17-to-13 margin on the New York Stock Exchange.
For the week, the Dow average gained 1.7 per cent, the S&P 500 rose 2.4 pe rcent and the Nasdaq added 4.8 per cent.
Dell Computer rose 2 3/4 to an all-time closing high of 66 1/16 after executives of the biggest direct-seller of personal computers said the economic slump in Asia won't impede sales growth. International Business Machines rose 2 15/16 to 133 1/2, accounting for almost half of the Dow's gain.