Stocks End Volatile Month With Up Day

Wall Street closed out a tumultuous month with a solid advance Wednesday, even after minutes from the last Federal Reserve meeting suggested that inflation pressures boosted the chance of another interest rate hike in June.

Some investors were encouraged as oil prices pulled back after the Bush administration opened the door to talks with Iran over its nuclear program. Near-term crude futures in New York lost 74 cents to $71.29 a barrel, after reaching a two-week high Tuesday.

In other markets, gold slumped and the dollar rallied. Bond yields rose, pushing the two-year Treasury note yield above 5% and to its highest level since late in 2000.

The Dow Jones industrial average rose 73.88 points, or 0.7%, to 11,168.31, recovering less than half of its 184-point drop on Tuesday.

The Dow was up as much as 89 points early in the session, then slumped briefly into negative territory after the Fed released the minutes of its May 10 meeting.

The minutes showed that policymakers were conflicted about what to do next with short-term interest rates, which they have been raising for nearly two years. Still, many analysts believe that the Fed is leaning toward another rate increase at its meeting later this month, to quash inflation pressures.

“The overall impression the minutes leave is that there’s a bit more concern about inflation than in previous minutes,” said Douglas Porter, a senior economist for BMO Nesbitt Burns.

Despite that prospect, stocks rebounded in the final half hour of trading. Winners topped losers by nearly 3 to 1 on the New York Stock Exchange.

Some analysts said the market had been primed for a rebound after the heavy selling of recent weeks.

Stocks worldwide tumbled in May on fears that rising interest rates in the U.S., Europe, Canada and elsewhere could jeopardize the global economic expansion.

The Dow fell 1.7% in May, and many broader U.S. indexes were hit harder.

The Standard & Poor’s 500 index, which gained 10.25 points, or 0.8%, to 1,270.09 on Wednesday, slumped 3.1% for the month.

The technology-heavy Nasdaq composite rallied 14.14 points, or 0.6%, to 2,178.88 on Wednesday but was down 6.2% for the month.

Many foreign stock markets also fell sharply in the month, after outpacing U.S. stocks in the first four months of the year. The German market lost 5.3%, Brazil’s tumbled 9.5% and Japan’s slumped 7.7%.

Despite recent data pointing to a slowdown in the U.S. economy, other reports have indicated the expansion remains on track.

A report Wednesday on manufacturing in the Chicago area pointed to healthy growth: The National Assn. of Purchasing Management’s Chicago unit said its manufacturing-activity index unexpectedly rose to 61.5 in May from 57.2 in April. A reading above 50 signals expansion.

That report may have helped fuel a sell-off in the Treasury bond market, where some investors fear the Fed might have to raise interest rates much further.

The yield on the 10-year Treasury note jumped to 5.13%, up from 5.08% on Tuesday and the highest since it reached 5.15% on May 17. The 2-year T-note yield ended at 5.04%, up from 4.97% on Tuesday and the highest since Dec. 29, 2000.

The Fed “won’t control inflation enough and the long end [of the bond market] will have to go up in yield,” said Mark MacQueen, who manages $4 billion of bonds at Sage Advisory Services in Austin, Texas.

The dollar may have been helped by the possibility of higher interest rates. The greenback rose to 112.59 yen from 112.17 on Tuesday.

The dollar’s rally weighed on the gold market. The metal often rises when the dollar slides, and falls when the currency strengthens. Near-term gold futures in New York dropped $11.40 to $642.50 an ounce. The price fell $9.30 for the month.

Markets’ next big hurdle may be the government’s report on May employment, due Friday.

Among the day’s highlights:

* Energy-related stocks jumped even as oil prices pulled back. Halliburton gained $2.67 to $74.59, Transocean surged $2.97 to $81.37 and Kerr McGee was up $3.01 to $106.85.

* Transportation issues also were strong. The stocks often are considered a barometer of investors’ expectations for the economy. Union Pacific rose $1.96 to $92.80, Continental Airlines gained 73 cents to $24.80 and trucking firm Ryder rallied 95 cents to $54.03.

The Dow transportation index eked out a small gain last month despite the broader market’s loss.

* On the downside, shares of many homebuilders and real estate investment trusts continued to drop on interest rate worries. KB Home fell 39 cents to $51.20, a 52-week low. In the REIT sector, Vornado Realty slid $1.28 to $89.89 and SL Green Realty was down $1.20 to $99.21.

* Tiffany, the luxury jeweler, rose $1.69 to $34.19 after saying it earned 30 cents a share in the first quarter ended April 30 on higher sales in Japan. Analysts had expected 28 cents.

* Utility shares rallied one day after Mirant bid $7.9 billion for rival NRG Energy. NRG rejected the offer. Among other utilities, TXU gained $1.15 to $57.30, Exelon jumped $1.38 to $56.61 and Edison International, parent of Southern California Edison, added 86 cents to $39.24.

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*--* Pctg. change: Index May YTD Dow utilities +2.2% +0.3% Dow transports +0.1 +11.3 Dow industrials -1.7 +4.2 S&P; 500 -3.1 +1.8 Bloomberg REIT* -3.2 +4.8 NYSE composite -3.3 +5.6 S&P; small-cap -4.6 +7.3 S&P; mid-cap -4.6 +3.7 Russell 2,000 -5.7 +7.1 Nasdaq compos -6.2 -1.2

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*Real estate investment trusts

Source: Bloomberg News