Tuesday, April 19, 2005

NEW YORK (AP) — Investors cheered by long-awaited good news on inflation pushed stocks higher yesterday, hoping that a lower-than-expected increase in basic wholesale prices meant the economy will stay on a sound footing. Solid first-quarter earnings also fueled buying.

Wall Street had feared that the Labor Department’s Producer Price Index, which measures wholesale prices, would show inflation taking hold in the economy. But while the PPI rose 0.7 percent for March owing to higher energy and food prices, the closely watched “core” PPI without those volatile costs grew just 0.1 percent, less than the 0.2 percent economists expected.

“We’re finally seeing some numbers that point to less inflation in the pipeline,” said Lincoln Anderson, chief investment officer at LPL Financial Services in Boston. “Coupled with a pretty strong earnings outlook for the quarter, this hopefully puts a floor on the market and gets things turned around again. The fundamentals of the economy remain good.”

The Dow Jones Industrial Average rose 56.16, or 0.56 percent, to 10,127.41, coming off of four straight down sessions and a loss of 436 points.

Broader stock indicators also gained ground. The Standard & Poor’s 500 index was up 6.80, or 0.59 percent, at 1,152.78, and the Nasdaq Composite Index gained 19.44, or 1.02 percent, to 1,932.36.

Worries about U.S. oil-refining capacity pushed crude futures sharply higher, keeping stock gains somewhat in check. A barrel of light crude settled at $52.29, up $1.92, on the New York Mercantile Exchange.

The lack of a major sell-off as crude futures climbed nearly $2 per barrel showed that Wall Street may no longer be concerned about the inflationary effects of oil. And analysts said the PPI report may be showing a clear end to the market’s inflation worries — as long as today’s Consumer Price Index, measuring retail prices, also comes in better than expected.

The bond market surged after the PPI report, with the yield on the 10-year Treasury note falling to 4.20 percent from 4.27 percent late Monday.

The Federal Reserve’s steady interest-rate increases, designed to shore up the dollar and combat inflation, may be starting to take their toll on the booming housing market. New housing construction tumbled 17.6 percent in March, according to the Commerce Department, far more than the 4.8 percent drop Wall Street expected. Part of the drop could be attributed to the weather, but rising rates, which have been slow to creep into long-term debt like mortgages, was considered a much larger factor.

In earnings news, an 11 percent increase in sales helped Johnson & Johnson to a strong first-quarter profit. The health care company beat Wall Street’s profit expectations by 5 cents per share. Johnson & Johnson edged a penny higher to $69.05.

Coca-Cola Co. climbed $1.43 to $42.40, although profits fell 11 percent from a year ago. Investors, however, had been more concerned with flagging sales, and the world’s largest beverage maker said an aggressive marketing campaign helped boost sales overseas. The company beat analysts’ forecasts by 4 cents per share.

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