The bond market breathed a sigh of relief Thursday after the government reported relatively benign "core" inflation at the wholesale level for December, sending stock prices higher across the board.
The Dow Jones industrials surged 76.19 points, or 1.2%, to a record 6,625.67, although the blue-chip index's rise was exaggerated by big gains in its three oil stocks.
The broad market wasn't up as strongly. Even so, the Russell 2,000 index of smaller stocks added 1.42 points to a record 365.59, finally surpassing its old high of 364.61 set during last May's small-stock frenzy.
Winners topped losers by 16 to 10 on the New York Stock Exchange and by 23 to 18 on Nasdaq in continued heavy trading.
The inflation report, which showed wholesale prices up a sharp 0.5% in December, was welcomed by the bond market because outside of food and energy costs there was little inflation to speak of, analysts said.
"Inflation remains under control," said Jay N. Mueller, who manages $4 billion in bonds for Strong Capital Management in Menomonee Falls, Wis.
The news pushed the yield on the bellwether 30-year Treasury bond down to 6.76% from Wednesday's two-month high of 6.84%. Shorter-term yields also fell.
Yields had been creeping higher in recent weeks on concern that the U.S. economy might be picking up speed, threatening higher inflation and higher rates.
But reports Thursday of small December sales increases at many major retail chains bolstered the perception that the economy's growth is moderate at best.
Today the bond market faces another crucial test, when the government reports on December employment. Bond traders are hoping to see a small job gain in the data, signaling that the economy remains on an even keel.
Among Thursday's highlights:
* Energy stocks soared anew even as crude oil prices dipped from Wednesday's six-year high. A Dean Witter analyst made bullish comments about several big energy companies. Within the Dow, Exxon surged 3 3/8 to 102 7/8, Chevron gained 1 5/8 to 68 3/8 and Texaco zoomed 3 to 105.
Other energy shares up sharply included Unocal, up 2 5/8 to 44 1/8; Atlantic Richfield, up 5 1/2 to 136 3/8; Halliburton, up 2 3/4 to 67 7/8; Royal Dutch Petroleum, up 3 1/8 to 174 3/4; and Tosco, up 3 7/8 to 88 5/8.
* Many financial shares rallied with falling bond yields. Wells Fargo gained 4 1/4 to 281, Allstate jumped 1 5/8 to 61 1/8, Everen Capital was up 1 to 23 7/8 and Federal Home Loan Mortgage gained 1 1/4 to 113 1/4.
Utility stocks also rose, with the Dow Jones utility index up 0.9% to 235.68.
* Many industrial stocks continued to climb, reflecting optimism about continued economic growth. Kimberly-Clark gained 7/8 to 97 5/8, Furon jumped 1 3/8 to 21 3/4, Alcoa was up 2 1/4 to 69 5/8 and Goodyear added 1 to 52 7/8.
* On the downside, some retail issues weakened on pessimism about sales prospects. Limited slumped 7/8 to 16 7/8, Neiman Marcus dove 3 3/8 to 23 3/8, Wet Seal sank 1 9/16 to 13 13/16 and Ann Taylor was off 7/8 to 16 5/8.
In foreign trading, Japan's stock market dive continued on worries about the anemic economy. The Nikkei-225 index tumbled 3.3% to 18,073.87. It has fallen 6.6% just since Dec. 31.
Market Roundup, D6