Dow tops 11,000 for 1st time since '01

The Dow Jones industrial average yesterday closed above 11,000 for the first time since the terrorist attacks and recession of 2001.

Despite strong economic growth and rising corporate profits over the past year, the market has been slow to respond. Investors have been concerned that rising interest rates will become a drag on economic activity. The Federal Reserve has raised interest rates 13 times since June 2004 as it attempts to control inflation.

But now, with the Fed signaling that its rate hikes may be over and businesses continuing to grow, ''The market has finally caught up," with corporate performance, said Art Hogan, chief market strategist at Jefferies & Co. in Boston. The companies that make up the Standard & Poor's 500 index of large companies have posted 13 consecutive quarters of profit growth, he noted.

The Dow tracks a cross-section of the country's largest corporations, ranging from chip maker Intel Corp. to medical devices giant Johnson & Johnson and retailer Wal-Mart Stores Inc. It has been slower to reflect the expanding economy than indicators such as the Russell Mid-Cap index, made up of smaller firms such as building materials supplier Georgia Pacific Corp. and software maker Salesforce.com.

The index rose 13 percent in 2005. In comparison, the Dow fell 1 percent for the year, its worst annual performance since 2002.

Yesterday's rise of the Dow to 11,011.90, up 52.59 points for the day, pushed the index's close to the highest it has been since June 2001. Its highest-ever close was 11,722.98 on Jan. 14, 2000, at the height of the technology stock bubble.

Ironically, the chief driver of yesterday's increase was a rise in the shares of General Motors Corp., the troubled carmarker that analysts said is likely to reveal price cuts at the Detroit Auto Show today.

GM's shares rose $1.61 to $22.41, still far below a year ago, when they were at $39.01 each. Financial services stocks including JPMorgan Chase & Co. and Merrill Lynch & Co. also rose and helped drive the Dow overall.

Hogan and other investment specialists said they expect continued increases in large-company stocks could push the Dow close to 12,000 by year's end, though they said several factors should keep its increases to single digits.

For one thing, energy prices remain at historical highs, particularly natural gas. The US economy also is due to slow down from its healthy growth rates of around 3.5 percent later this year, said Gus Faucher of Moody's Economy.com, a Pennsylvania forecasting firm.

Another factor is the tightening labor market, a good thing for job seekers but a potential source of inflation and profit cuts if companies have to increase wages to keep workers. Unemployment stood at 4.9 percent according to figures disclosed Friday, among its lowest levels since March.

The labor market still has room to tighten before inflation kicks in, Faucher said. Growth measures also lag the peaks of eight years ago. ''The economy is good but not as great as it was in the late 1990s," he said.

For stocks that's a fine thing, particularly some of the major companies whose shares haven't grown as much as minor companies did in 2005. Last year's big winners were energy stocks driven by hurricane-induced price spikes, and foreign companies that make up lucrative but risky Asian and Latin American indexes.

Now large company stocks may have their turn. Harvey Hirschhorn, chief portfolio strategist for Bank of America, said he's keeping the Charlotte bank's holdings heavily in healthcare companies and financial services firms, especially those that are likely to increase their dividend payments.

He noted investors also are starting to put money back into stocks after years of slow growth convinced many to try alternative investments, such as real estate and precious metals like gold. ''We're seeing the cash coming in from the sidelines," he said.

The Dow has flirted with 11,000 several times since November but fallen, prompting talk of a psychological barrier scaring off new money. Even yesterday the index was hesitant after it first crossed the mark around 1 p.m. and dipped below several times before a late-day rally around 3:30 pushed it over the top.

Pioneer Investment Management's executive vice president, Charles P. Mayer, said the gap between the Dow's performance and the steady increase of other indexes reflects lingering skepticism toward large companies, only now receding as their earnings catch up. The Dow's membership has also included some infamous corporate basket cases like Enron Corp. ''The large-caps did so well in the 1990s that people needed a breather," Mayer said.

Ross Kerber can be reached at kerber@globe.com.