Upbeat Data Boost Stocks

The Nasdaq composite and Standard & Poor’s 500 indexes closed at fresh five-year highs Wednesday after a positive report on the economy’s service sector pushed stocks modestly higher. A jump in oil prices, however, minimized Wall Street’s gains.

The Institute for Supply Management’s service index, an important barometer of that sector’s activity, came in at 60.5 for March, up from 60.1 in February and better than the 59 reading economists had expected. The modest gains were enough to encourage Wall Street about that sector’s growth, but did not appear to reignite the market’s interest rate worries.

Yet trading remained tentative as the Energy Department’s weekly inventory report showed lower stockpiles of gasoline and distillate fuels, which drove up crude oil futures. A barrel of light crude settled at $67.07, up 84 cents, in New York trading.

“The tick up in oil prices hurts, but history has shown that interest rates have a much bigger impact on the stock market than oil,” said Jack Ablin, chief investment officer at Harris Private Bank. “And looking at the [Institute for Supply Management] services number, you’re seeing the kind of gradual, lazy improvement in the economy that’s not going to really get rates going.”

The Nasdaq gained 14.39 points, or 0.6%, to 2,359.75, its best close since Feb. 16, 2001, when it closed at 2,425.35.

The S&P; added 5.63 points, or 0.4%, to 1,311.56, its best showing since May 21, 2001, when it finished at 1,312.83.

The Dow Jones industrial average rose 35.70 points, or 0.3%, to 11,239.55.

The Russell 2,000 index, the S&P; small-cap index and the New York Stock Exchange composite index all hit record highs.

U.S. Treasury yields edged lower after a round of speeches from top Federal Reserve officials intimated a possible end to interest rate hikes. Kansas City Federal Reserve Bank President Thomas Hoenig said late Tuesday that U.S. interest rates were close to where they need to be as long as the economy slows toward a more moderate pace, as he expected.

The yield on the benchmark 10-year note dipped to 4.85%, from 4.86% on Tuesday.

The stock market’s activity -- which had the major indexes seesawing through the early part of the session -- could be attributed to investor unease ahead of Friday’s March employment report from the Labor Department. The report is a key indicator of the overall economy’s health, and Wall Street remained concerned that a strong economy would prompt more interest rate hikes from the Federal Reserve.

With that uncertainty looming and key stock indexes at or near five-year highs, many investors were unlikely to jump into the market without at least some kind of retrenchment over the next few weeks, analysts said.

“Nobody likes to buy into a market that’s making new highs. People like to be in a market that’s making new highs,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati. “We’re pretty much at a top right now, and people are going to want to see a good-sized correction at some point before jumping in again.”

In other market highlights:

* Technology shares were boosted by Apple Computer’s announcement of software that will allow its newest computers, which use Intel’s chips, to run Microsoft’s Windows XP programs.

Apple jumped $6.04, or 9.9%, to $67.21, its best performance since November 2004 and the second-biggest gain in the S&P; 500. Intel gained 18 cents to $19.48 and Microsoft increased 10 cents to $27.74.

A measure of computer-related shares was the top contributor to the S&P; 500’s gain among 10 industry groups, adding 1%.

* Alcoa advanced 81 cents, or 2.6%, to $31.67 for the top rally in the Dow average. The aluminum maker will earn $2.16 a share this year, Credit Suisse analysts said. That’s up 41 cents from a previous estimate as prices for metals will continue to rise this year amid supply constraints, the analysts said in a note.

* Higher oil prices helped the energy sector. ConocoPhillips increased $1.41 to $66.56 and Valero Energy gained $2.66 to $62.50.

* Bausch & Lomb, the maker of eye-care products, fell $2.39 to $58.02. Bear Stearns & Co. analyst Milton Hsu cut the stock to “peer perform” from “outperform,” citing uncertainty about accounting issues.

* Tenet Healthcare jumped $1.12, or 14%, to $9.02 for the biggest gain in the S&P; 500. The second mistrial declared by a U.S. District judge in San Diego this week could “set the stage for a settlement with the Federal government,” a Prudential Equity Group analyst wrote.

* Sears Holdings climbed $6.19 to $137.87. The No. 1 U.S. department-store chain said it would repurchase $500 million in shares, boosting its share buyback program by 50%.

* Dow Jones slumped $1.26, or 3.2%, to $37.85, after a Merrill Lynch analyst lowered its shares to “sell” from “neutral.”