FINANCIAL MARKETS : Stocks Climb as Fresh Data Ease Inflation Fears
Stocks climbed in heavy trading Thursday after fresh government data, countering reports last week, suggested inflation is under control.
While the Dow Jones industrial average closed up 17.34 points at 5,586.06, it had been up more than 60 points at one point Thursday.
Philip Morris stock fell sharply for the second day amid uncertainty surrounding tobacco litigation. Without the Philip Morris decline of 5 1/2 to 92 1/2, the Dow would have ended the day at nearly 16 points higher.
Advancing issues led decliners by more than 3 to 2 on the New York Stock Exchange. Big Board volume was 491.38 million shares as of 4 p.m., the eighth-largest volume ever, according to the exchange, and well above Wednesday’s 409.47 million shares.
Broad market indexes also rose. The Standard & Poor’s 500-stock index rose 2.30 points to 640.85 and the Nasdaq composite index gained 2.43 points to 1,091.07.
The 30-year Treasury bond finished unchanged on the day at 6.69%. Bonds firmed early in the day after the Labor Department said wholesale prices fell 0.2% in February, the first decline in eight months.
The producer price index report Thursday, combined with the Federal Reserve Board’s quarterly report on the economy released Wednesday, prompted some analysts to reconsider their sober conclusion that the economy is growing too fast to justify a further interest rate cut this month by the Fed.
“Both [reports] give very conclusive evidence that the economy is growing moderately--if that--and that inflation pressures are extremely subdued,” said Don Hays, director of investment strategy at Wheat First Butcher Singer Inc. in Richmond, Va. “Three days ago, it was a given the Fed would not even consider lowering interest rates. Now the question is starting to come back up.”
Stock investors want lower interest rates because they cut corporate borrowing costs, improve earnings and make stocks more attractive than fixed-return investments.
They had all but given up hope of a rate cut after the government reported last Friday that U.S. businesses added an astounding 705,000 payroll jobs in February. That followed quite bullish February chain-store sales reports earlier last week.
The markets will get another read on inflation today with the release of the report on consumer prices. Also due today are reports on industrial production and use of plant capacity in February, plus a look at consumer sentiment.
Today’s trading could also be roiled by a quarterly triple expiration of options and futures although, if recent history is any guide, traders tend to make their “triple witching” moves earlier in the week instead of waiting until the last minute.
Investors aggressively bought economically sensitive stocks, on the premise that the economy may not be more robust than previously thought. Basic materials stocks--such as paper and chemicals, transportation stocks and autos--rose broadly despite a strike at General Motors Corp.
Among market highlights:
* Monsanto disclosed plans to boost performance incentives for employees, seek a stock split and repurchase shares--all of which combined pushed up its stock price by $4 5/8 to close at a new 52-week high of $149 5/8.
* Financial stocks rose on the decline in interest rates. They were led by American Express, which rose 2 1/4 to 47 1/4. The gains came after the company on Wednesday repeated earlier reports that Warren Buffett, its largest shareholder with a 10.2% stake, has permission to buy up to a 17% interest.
* Oil stocks advanced as April oil futures gained more than 60 cents a barrel on concerns about short-term supplies and low U.S. oil reserves. Among the oil components of the Dow index, Chevron rose 1 to 56, Exxon added 1 to 81 and Texaco gained 1 3/8 to 84 1/2.
