Stocks Rally on Positive Inflation News

Stocks on Wednesday staged their best rally so far in August, bouncing back as bond yields eased slightly.

The Nasdaq composite rocketed 74.87 points, or 3%, to 2,564.98, after falling 13% between July 16 and Tuesday.

The Dow industrials jumped 132.65 points, or 1.2%, to 10,787.80. The Dow now is less than 4% off its record high set July 16.

Most major stock indexes closed near their highs for the day as the rally that began in late morning--after an early slide--built steam in the afternoon.

Traders said the market was ripe for a rebound after the deep declines many stocks have experienced since mid-July.

One trigger for Wednesday’s advance was the Federal Reserve’s “beige book” report on U.S. economic conditions. Although the report said the economy was growing briskly, it found “no evidence of any broad-based pickup” in prices of goods and services.

That positive view of the inflation picture helped ease some fears in the bond market, where inflation jitters have pushed yields to near two-year highs.

The yield on the benchmark 30-year Treasury bond slid to 6.21% from 6.25% on Tuesday.

Also helping bonds was the Treasury’s sale of $12 billion in new 10-year notes, which saw stronger-than-expected demand. The yield on the notes was 6.09%.

The Treasury concludes its quarterly bond sale with a 30-year bond auction today.

Although yields fell Wednesday, Wall Street still widely expects the Fed to raise its key short-term interest rate when it meets Aug. 24.

“This has been a nervous [stock] market and will continue to be for a while,” at least until the Fed meets, said Barry Berman, head trader at Robert W. Baird & Co. in Milwaukee.

“There’s a lot of economic news for people to look at in advance of the next meeting,” he noted.

Still, the buyers were in charge Wednesday. Winners topped losers by more than 3 to 2 on the New York Stock Exchange and by nearly that on Nasdaq. Trading volume declined from Tuesday, however.

Among Wednesday’s highlights:

* Major technology shares led the way, with Intel soaring $4.25 to $76, a record high. Also, Cisco Systems surged $4.19 to $62.94. The computer-networking leader on Tuesday said quarterly earnings jumped 30%.

Other tech giants sharply higher included Apple Computer, up $4.31 to $59.69; IBM, up $4 to $123.31; Sun Microsystems, up $3.69 to $71.69; and Texas Instruments, up $7.75 to $146.25.

* The Internet sector was mixed. America Online soared $7.38 to $92.38. AOL President Bob Pittman said the company’s business has never been better, according to a conference call the company held with analysts.

But EBay slid $1.56 to $87.69, Priceline.com lost $1.75 to $70, Healtheon fell $1.69 to $30.06 and Amazon.com eased 6 cents to $90.94.

Some of the hottest shares were those in the Net infrastructure sector, including Ariba, up $17.88 to $107.88; F5 Networks, up $5.38 to $42.88; and Redback Networks, up $16.13 to $186.

* Among new stock issues, Linux computer system standard-bearer Red Hat leaped $38.06 to $52.06 on its first day of trading, and Net commerce software firm InterWorld gained $2.75 to $17.75. But Mortgage.com slumped 84 cents to $7.16 from its initial offering price of $8.

* Energy shares gained as oil prices surged again. Exxon rose $1.19 to $81.94, Unocal gained 88 cents to $41.13 and Sunoco jumped $1.63 to $31.63.

Fueled by oil stocks, the Fidelity Select Energy stock mutual fund is up 44% year-to-date. By contrast, the Fidelity Magellan fund is up about 5%.

* News of Alcoa’s takeover offer for Reynolds Metals sent Reynolds up $9.38 to $65.25 and Alcoa up $2.94 to $69.38, and it helped spark renewed interest in many other heavy-industry shares.

DuPont rose $2.50 to $72.69, PPG Industries jumped $1.94 to $63.25, USX-U.S. Steel rose $1.31 to $26.63 and Phelps Dodge surged $4.88 to $62.19.

* Gold stocks continued their recent rally. Newmont Mining added $1.06 to $21.25, a 5.3% gain, and Placer Dome was up 50 cents to $10.94, a 5% rise.

* Callaway Golf surged $1.50 to $10.81 as bargain hunters jumped into the beaten-down stock.

* Oak Industries dove $13.25 to $27.75. The maker of electrical components for telecommunications systems said it expects third-quarter net income to fall short of analysts’ estimates because a major customer stopped buying.

In foreign trading, Latin American markets were pulled up by Wall Street. The Mexican market jumped 2.4%.

Market Roundup, C8