Dow surges ahead of Fed decision on rates

In an unmistakable signal that Wall Street has already priced in an interest rate increase widely expected from a meeting of the US Federal Reserve today, the Dow Jones industrial average soared 100 points last night.

The unexpected devil-may-care mood ahead of the Fed meeting took hold only in the last hour of trading when the industrial average surged.

Earlier in the day, it had hovered around the unchanged mark. Most economists expect the Fed Open Market Committee to agree a quarter-point interest hike at its monthly meeting in Washington.

The increase would represent the first tightening of monetary policy - indeed, the first change in interest rate policy of any kind - by the Fed in 15 months. The fizz on the Dow contrasted, however, with a rocky day on the Nasdaq, which slipped an ominous 11.43 points in what appeared to be a continuation of the fragility shown by most hi-tech stocks through last week.

Attention was focused on Microsoft which saw an almost 5 per cent drop in its stock value following news that it would not deliver an updated version of its super-popular Windows 95 system until after this year's Christmas shopping season.

The troubles at Microsoft had a ripple effect on several other tech stocks as traders worried about the consequences for the broader computer sector.

Commenting on the Nasdaq's decline, Tony O'Brien of AG Edwards said: "The correction started in stocks which were fundamentally defective or deficient and then moved into small-caps and mid-caps.

"Now you are correcting the big boys."