- The Washington Times - Tuesday, July 18, 2006

NEW YORK (AP) — A late-day rally gave stocks a moderate advance yesterday as a second day of lower oil prices calmed investors uncertain about the direction of interest rates.

Better-than-expected earnings from Coca-Cola Co. and United Technologies Corp. propped up the Dow Jones industrials, while mild wholesale inflation data also lent some support to the market. But concerns about conflict in the Middle East made investors uneasy about buying: Stocks spent most of the session lower before recovering late in the day.

John Forelli, portfolio manager for Independence Investments, said traders were bracing for Federal Reserve Chairman Ben S. Bernanke’s appearance before Congress today.

While a modest rise in the core Producer Price Index helped the inflation picture, analysts said the stronger-than-forecast gain in overall PPI raised the possibility of more rate increases from the Fed and also unnerved the bond market. Downbeat housing data renewed fears about an economic slowdown.

The Dow Jones Industrial Average climbed 51.87, or 0.48 percent, to 10,799.23, after sinking as much as 63 points earlier.

Broader stock indicators also recouped early declines. The Standard & Poor’s 500 Index gained 2.37, or 0.19 percent, to 1,236.86, and the Nasdaq Composite Index rose 5.50, or 0.27 percent, to 2,043.22.

Advancing issues overtook decliners by 6 to 5 on the New York Stock Exchange. Stocks barely budged Monday amid nervousness about buying after sharp losses last week, Wall Street’s worst in 2006.

However, the rise in overall PPI had the bond market worried about inflation weakening the value of fixed-income investments. The yield on the 10-year Treasury jumped to 5.14 percent from 5.07 percent late Monday.

The day’s data reinforced Wall Street’s anxiety about the economy. Although recent reports have provided evidence of slowing economic growth, rising inflation from persistently high oil prices could prompt the Fed to keep boosting interest rates — and potentially trigger an economic downturn.

That comes as central banks worldwide are also lifting rates to contain inflation, which would curb global demand and foreign investments as money becomes more expensive to borrow. Today, Mr. Bernanke’s speech and the latest reading of the Labor Department’s critical Consumer Price Index could lead stocks in either direction.

Tension in the Middle East sent crude futures soaring before trades locked in profits toward the end of the session. A barrel of light crude jumped to $76.55 but fell $1.76 to settle at $73.54 on the New York Mercantile Exchange.

Elsewhere, the U.S. dollar fell against the Japanese yen. Gold dropped to $630 an ounce.

Dow Jones industrial Coca-Cola said higher sales and overseas growth helped its profit gain 7 percent to beat targets by 2 cents per share. Coca-Cola climbed 85 cents to $43.55.

United Tech, also a Dow component, said its profit grew 14 percent as demand for aerospace products offset weakness at its Carrier heating unit. United Tech advanced 92 cents to $58.88.

Johnson & Johnson weighed on the Dow, slumping 31 cents to $60.60 despite a 9 percent jump in earnings on record sales and less marketing and overhead costs.

Merrill Lynch & Co.’s earnings swelled 42 percent on solid trading activity despite the second-quarter downturn in the markets. Merrill Lynch nonetheless slid 77 cents to $67.50.

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