Dow Up 8.51; Caution Reigns Ahead of Data

Stocks struggled to meager gains Wednesday despite rising interest rates in the bond market.

But trading turned cautious in advance of the monthly report due Friday on U.S. payroll and wage levels, which could be a deciding factor in whether the Federal Reserve Board raises its lending rates to control inflation by slowing the economy.

The Dow Jones industrial average traded in a narrow, indecisive range, rising 8.51 points to close at 5,656.90.

Most broad-market indexes turned higher late in the session, which was rather uneventful aside from an agreement by Staples to acquire office supply rival Office Depot for about $3.5 billion in stock.

Stocks were pressured throughout the session by a weak bond market, which surrendered Tuesday’s gains on an agreeable economic reading on the health of the manufacturing sector.

“There was a perception that maybe there was an overreaction on the positive side on Tuesday,” said Peter Anderson, chief investment officer at the IDS Advisory Group in Minneapolis.

As bond prices fell, the yield on the 30-year Treasury bond--a key determinant of corporate and consumer borrowing costs--rose to 7.09% from 7.05% on Tuesday.

But without any major economic data to steer trading, the focus shifted to the monthly employment report, which has jolted the market several times since early March with revelations of unexpectedly strong growth in payroll and wage levels.

“We’re all waiting on the unemployment report on Friday. The markets are wallowing around aimlessly, but they won’t be moving aimlessly Friday, unless the numbers are mush,” Anderson said.

A substantial increase in employment costs--which constitute two-thirds of a product’s price--could quicken the pace of inflation.

“If the wage number indicates an acceleration in wage pressures, the bond market will react negatively and so will the stock market,” said Anderson.

Last month, the Fed’s policy-makers left the central bank’s short-term interest rates unchanged amid indications that economic growth was slowing on its own and inflation remained in check. But a series of robust readings last week has reignited speculation that the ever cautious Fed will move to slow things down, even as soon as Friday.

Rapid inflation makes fixed-income investments such as bonds less worthwhile, forcing down prices to improve the yield. Higher bond and Fed interest rates can hurt stocks by boosting corporate borrowing costs and slowing consumer spending.

Advancing issues outnumbered decliners by a 13-9 margin on the New York Stock Exchange, where volume totaled 351.28 million shares as of 4 p.m., up from Tuesday’s pace.

The NYSE’s composite index rose 0.61 point to 352.37, and the Standard & Poor’s 500-stock index rose 0.89 point to 655.61.

The Nasdaq composite index rose 1.53 points to 1,143.82, but the American Stock Exchange’s market value index fell 0.45 point to 557.34.

Among Wednesday’s highlights:

* Shares of Office Depot, the largest business supplies retailer, surged 4 37/64 at 20 29/64 at the NYSE’s most active issue, while No. 2 Staples slipped 3/4 to 18 3/4 as the most active Nasdaq stock. OfficeMax, the No. 3 office supplies retailer, lost 5/8 at 13 1/8.

* Campbell Soup shares rose 2 1/8 to 67 3/4 amid speculation that the company will announce a major restructuring of its business today. After market close, the company reported record fourth-quarter earnings of 73 cents per share, compared with 57 cents for the year-ago quarter.

* Shares of American Eagle Outfitters rose 4 11/16 at 25 15/16, up 22%, after the retailer of casual clothing surprised analysts by reporting a fiscal second-quarter profit on higher sales. American Eagle, which was expected to post a loss, said it had net income of 4 cents a share in the quarter ended Aug. 3, rebounding from a year-earlier loss of 16 cents.

* The Dow’s strongest components were cyclical issues. Caterpillar rose 1 5/8 to 71, Sears rose 1 1/8 to 44 3/4 and Boeing rose 3/4 to 91 3/8.

Among commodities, oil futures prices fell modestly following an enormous run-up the day before on word of the United States’ attack on Iraqi military facilities.

Light sweet crude oil for delivery in October settled at $23.24 per barrel, down 16 cents, at the New York Mercantile Exchange. On Tuesday, it gained $1.15 a barrel.

In currency markets, the dollar fell against the yen and the mark as the market focus veered away from the conflict in Iraq to American economic fundaments and upcoming U.S. jobs data.

Late Wednesday the dollar was lower at 1.4805 marks and 108.78 yen, compared with 1.4840 and 109.22 Tuesday.

Overseas, Tokyo’s Nikkei stock average edged higher, Frankfurt’s DAX index rose 0.9%, and London’s FTSE-100 rose 0.4%.

Market Roundup, D6