Stock prices ended higher Thursday after a raft of reports suggested that the economy is growing at a moderate pace and inflation is under control.
But equities gave up much of the day's gains after a bond rally faded, and analysts and traders described a nervous market that is highly dependent on the direction of interest rates and bond market activity.
"The market's had just about all of the good news humankind could stand this morning, and it sparked a typical bear market rally that's unsustainable," said Michael Metz, chief strategist at Oppenheimer & Co.
Metz said the day's action was dominated by professional traders "with low convictions, who want to scalp short-term profits."
The Dow Jones average rose 23.80 to 3,652.84 on New York Stock Exchange volume of 272.78 million shares. In the broader market, rising shares outnumbered losers by about 11 to 9 on the NYSE.
Broad-market indexes moved higher. The NYSE's composite index rose 1.04 to 245.55. The S&P; 500 index increased 2.26 to 443.75, while the Nasdaq index of mostly smaller issues advanced 2.61 to 719.61.
Stock and bond prices shot up in the morning after two government economic reports gave no indication of more inflation, which erodes the value of fixed-income securities such as bonds.
The Labor Department reported wholesale prices fell 0.1% in April as food and energy costs declined. The market had expected a rise of 0.2%. Retail sales also took an unexpectedly sharp drop, falling 0.8% in April, the second decline in four months and far weaker than the 0.3% gain economists had expected. But analysts blamed much of the weakness on the fact that Easter came early this year, pushing many sales into March.
A third report showed that new unemployment claims rose by 26,000 last week to 378,000, the highest level since late January. The market had expected them to fall by 10,000.
The Treasury's 30-year benchmark bond shot up 1 1/4 points in early trading but cut its gains after San Francisco Federal Reserve Bank President Robert Parry indicated he might be in favor of increasing short-term interest rates more than the quarter-point the market has been expecting.
The long bond eventually closed up 7/16 point, or $4.38 per $1,000 in face value, while its yield fell to 7.55% from 7.59% on Wednesday. Prices and yields move in opposite directions.
Alfred E. Goldman, vice president and market strategist at A.G. Edwards & Sons Inc. in St. Louis, said the reports "relieve some of the fear that the economy was going to explode on the upside," but "probably (do) not rule out a rate increase by the Federal Reserve Board."
Stock and bond markets are expecting the Fed to tighten short-term interest rates by at least a quarter of a point when it meets next week. That would be the fourth tightening since early February.
Goldman said the economy "is developing enough steam where inflation could be a problem down the road" and added that he believes "there is room for another quarter-point tightening" in short-term rates.
Among Thursday's market highlights:
* Margaretten Financial rose 1 11/16 to 24 9/16 on news of an acquisition by Chemical Bank, which ended unchanged at 34 3/8.
* Allied Signal advanced 1 1/2 to 35 3/4 and Textron climbed 1 3/8 to 54 3/4 after Allied Signal said it was buying Textron's aircraft engine unit for about $375 million.
* Philip Morris gained 3 to 50 1/2 on renewed speculation that it may spin off its tobacco unit.
* Retailer Gap gained 3/8 to 45 1/4 on higher first-quarter profit.
* Scott Paper jumped 2 to 44. Smith Barney Shearson upgraded the stock to a "buy," citing expectations it will sell its S.D. Warren unit to International Paper, which ended off 3/8 to 64 1/4.
Foreign markets also closed generally higher. In Mexico City, the Bolsa index gained 56.13 points, or 2.58%, to close at 2235.70. Tokyo's Nikkei 225-share average gained 74.11 points to finish at 20,224.24.
In Europe, Frankfurt's 30-share DAX average added 8.48 points to close at 2,243.63, while London's Financial Times 100-share average ended the day up 7.3 points at 3,137.8.
The dollar fell slightly in global foreign exchange trading, weakened by unmet expectations that the Federal Reserve would raise interest rates.
The greenback closed in New York at 104.30 Japanese yen, down from 104.32 yen Wednesday. The dollar closed at 1.668 German marks, down from 1.671.
Elsewhere, crude oil continued to rally, surging past $18 for the first time since October, and put the market's winter-long slump further in the past. Light, sweet crude oil settled at $18.28 a barrel, up 43 cents, at the New York Merc.
Market Roundup, D6