US STOCKS-Wall St rallies at start of new quarter

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NEW YORK, Oct 1 (Reuters) U.S. stocks began the fourth quarter with a rally on Monday as investors bet that Wall Street may have seen the worst of the credit squeeze.

The Dow industrials rose to an all-time high and was on course for a record close, while the Nasdaq reached its highest in more than 6 1/2 years.

In addition to financial services companies, investors snapped up technology bellwethers such as IBM and Intel Corp.

Shares of big manufacturers, such as plane maker Boeing Co also showed strength.

Citigroup Inc warned that its third-quarter profit would fall by 60 percent, but investors took comfort after Chief Executive Charles Prince said the largest U.S. bank would ''return to a normal earnings environment in the fourth quarter.'' For details, see ID:nN01274872.

Analysts said Citigroup's announcement suggested the losses that banks are taking from subprime mortgages and other risky loans will not have a lasting impact on the financial sector.

''The piece of news that caused me to believe that companies are going to handle this well was Citigroup taking a very aggressive stance on re-pricing their portfolio, and I think this is the way we can expect financial institutions to go forward,'' said Ernie Ankrim, chief investment strategist for Russell Investment Group in Tacoma, Washington.

The Dow Jones industrial average was up 191.11 points, or 1.38 percent, at 14,086.74. Earlier in the session, it hit an intraday all-time high of 14,105.19. The blue-chip gauge was on course to surpass its record close of 14,000.41 on July 19.

The Standard&Poor's 500 Index was up 19.03 points, or 1.25 percent, at 1,545.78. The Nasdaq Composite Index was up 35.36 points, or 1.31 percent, at 2,736.86.

Earlier the Nasdaq rose to its highest since February 2001.

Shares of Citigroup rose 2.3 percent to .75.

Shares of American Express Co climbed 2.1 percent to .61 on the NYSE, while JPMorgan Chase&Co gained 2 percent to .73. The Philadelphia KBW Bank Index was up 2.1 percent.

On the technology front, of International Business Machines Corp and Intel were among the biggest gainers. IBM rose 1.3 percent to 9.36, setting a 52-week high, while chip maker Intel gained 2.4 percent at .49.

Shares of Boeing gained 1.6 percent to 6.68, while diversified manufacturer United Technologies Corp climbed 1.9 percent to .07.

The Institute for Supply Management's index of national factory activity for September fell slightly and was just below economists' expectations, but the manufacturing sector still showed it was expanding.

Former Federal Reserve chief Alan Greenspan said at a Reuters event in London that there were signs the lending crisis could be coming to end as demand for more risky assets grows. However, he warned any speculative market fever must be allowed to run its course to enable a full recovery.

Reuters MP VP0107

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