Stocks to ride wave of war hopes

Headlines from the war in Iraq will again dominate trading on Wall Street this week as investors ride out a rally that has pushed all three major market gauges above the break-even mark for the year.

Stocks are expected to keep swerving with each piece of news to emerge from Iraq.

"Investors are going to spend the next several days focused on the news flow related to the ongoing conflict. For better or worse, less attention will be given to economic and corporate variables," said equity strategist Jack Caffrey of JP Morgan Private Bank.

Stocks surged on Friday, driving the blue-chip Dow Jones industrial average to its eighth day of gains and its best week since October 1982. The Dow has gained 13 per cent since the rally began last week.

The broad Standard & Poor's 500 index also posted eight days of gains, its longest streak since June 1997. And the tech-heavy Nasdaq Composite Index advanced.

But some investors began hedging optimism with caution.

"We're in the process of substituting one set of uncertainties for another. How's the war going to go? What forces will be unleashed that we haven't anticipated? That, to me, limits the potential upside in the near term," said Tim Connors, chief investment officer at Delaware Investments in Philadelphia.

Last week, the market shook off sour corporate news and seemed to ignore economic developments, including a Federal Reserve meeting.

Investors on Friday were glued to television sets flashing footage of bombs pounding Baghdad as the United States unleashedwhat it has dubbed its "shock and awe" campaign aimed at toppling the Iraqi regime. US-led forces swept through southern Iraq and seized oilfields.

Wall Street will have fresh data to consider this week on the state of the US economy, including reports on durable goods, consumer confidence, gross domestic product, personal income and home sales.

"At some point, people have to go back to trading on economic data and earnings," said Rich Nash, chief market strategist at Victory Capital Management in Cleveland.

"The reports have been pretty disappointing over the last couple weeks, which is not surprising, given the specter of Iraq," Mr Nash said.

"So we think the market's a bit undervalued, five (per cent) to seven per cent undervalued," he added. "But since economic data and earnings reports are going to continue to be weak, we could see a bit of a pullback."

Apart from the war, one of the week's main events is the government's report of real fourth-quarter GDP. Economists in a Reuters survey forecast an increase of 1.4 per cent, marking the fifth straight quarter of growth in the US economy.

Wall Street will also be watching out for data on the manufacturing sector, with the government scheduled to issue a report on orders for big-ticket manufactured goods. Durable goods orders are expected to show a drop of 1.2 per cent for February, compared with a rise of 2.9 per cent in January.

Investors will look at personal income for clues on whether American consumer spending - which powers about two-thirds of US economic activity - held up in the run-up to the war and the first days of fighting.

The Conference Board's consumer confidence index is expected to dip to 62.4 for March, down from 64.0 in February.

Walgreen Co., the top US drugstore operator, will report quarterly earnings, as will ConAgra Foods Inc., a top maker of brand-name foods, including Healthy Choice frozen dinners and Chef Boyardee canned spaghetti.