Stocks advanced Wednesday after a better-than-expected report on consumer prices tempered concerns about inflation.
The Labor Department's report that consumer prices rose 0.2% in April after rising 0.3% in March seemed to alleviate investors' worries that the recent surge in energy costs would force prices throughout the economy to race higher. The tame inflation came despite the largest jump in food prices in 18 years.
Wall Street has been concerned that higher food and energy costs are cutting into consumers' ability to spend. Any such pullback is an unnerving prospect for investors because consumer spending accounts for more than two-thirds of U.S. economic activity.
Marc Pado, U.S. market strategist for Cantor Fitzgerald, said the mild increase in the consumer price index and recent figures on labor productivity indicated that businesses were swallowing some of the rising costs they faced instead of passing all of them to consumers.
"You have higher input costs but you're getting more out of your workers so therefore you're able to control your output costs," Pado said. "The economy is lean and mean and doing well even though on the demand side it's slumping."
The Dow rose 66.20 points, or 0.5%, to 12,898.38. The blue-chip index had been up more than 150 points before a late sell-off in technology stocks.
Broader stock indicators also advanced. The Standard & Poor's 500 index climbed 5.62 points, or 0.4%, to 1,408.66. The Nasdaq composite index rose 1.58 points, or 0.1%, to 2,496.70.
The Russell 2,000 index of smaller-company stocks fell 0.78 points, or 0.1%, to 736.07.
Advancing issues outnumbered decliners by more than 3 to 2 on the New York Stock Exchange.
Government bond yields edged up as stocks advanced. The yield on the benchmark 10-year Treasury note fell to 3.91% from 3.92% late Tuesday.
Oil prices retreated. Crude futures fell $1.58 to settle at $124.22 a barrel on the New York Mercantile Exchange.
The dollar was mixed against other major currencies, while gold prices fell.
Although Wednesday's price report was comforting and major indexes are approaching their highs of the month, that doesn't mean Wall Street has conquered its problems and is set for a rebound from months of turmoil, some analysts say. They warn that an examination of the market by sector shows that one in particular -- financial stocks -- is still being left behind.
Steve Goldman, chief market strategist at Weeden & Co., said he remained troubled about the financial industry's underperformance amid lingering worries that the credit crisis is still not over. The sector has risen along with stocks overall, but not enough to fit the typical pattern of a sustained ascent by the market.
"They tend to outperform the S&P; by a 50% margin, but we're not seeing that at all," he said of financials. "This has been a nice rally, but for those of us that are bullish about the market, we're going to need to see them outperform in order to feel comfortable going long."
Concerns that major investment banks and retail banks will have more large write-downs in coming quarters has put pressure on their stock prices. For instance, Lehman Bros. Holdings is down about 4.2% so far this month, while the S&P; 500 is up 1.7%.
"They led us into the crisis, but they're not yet leading us out of it," Goldman said. "That's what needs to happen."
On Tuesday, leadership initially came from technology stocks -- with the Nasdaq at one point up 1.3%. However, investors collected profits during the last hour of trading and sent big tech names sharply lower. Apple fell $3.70, or 2%, to $182.26, after trading as high as $192.24 during the session.
In other market highlights:
* Deere fell $8.94, or 9.9%, to $81.25. The manufacturer said its quarterly earnings climbed 22% as higher crop prices drove global demand for its farm equipment. But the company said rising costs of raw materials could eat into its profit in the coming months.
* Jack in the Box sank $2.90, or 10%, to $24.87 after the fast-food chain said sales at restaurants open at least a year fell short of forecasts for the company's latest fiscal quarter. The chain lowered its sales projection for the current quarter.
* Freddie Mac surged $2.29, or 9.2%, to $27.25 after the country's second-largest buyer and backer of home loans posted a smaller-than-expected loss of $151 million.
* Sony jumped $3.87, or 8.4%, to $49.93. Strong sales of flat-panel TVs and digital cameras helped the electronics company swing to a profit in its latest quarter.
* Whole Foods Market tumbled $4.68, or 14%, to $28.96. Costs related to its purchase of Wild Oats Markets weighed down quarterly profit, which fell 13%, more than expected.
* Overseas, key stock indexes rose 1.2% in Japan, 0.1% in Britain, 0.3% in Germany and 1.1% in France.