- The Washington Times - Thursday, June 1, 2006

NEW YORK (AP) — Wall Street rallied for a second session yesterday as investors brushed aside mixed signals on inflation a day after the Federal Reserve said it was concerned about rising prices. The Dow Jones Industrial Average surged nearly 92 points, and the Nasdaq Composite Index, battered during the market’s May slump, turned positive for the year.

While manufacturing activity slowed last month, high energy and materials costs drove a sharp uptick in prices paid and fueled fears that the Fed could continue lifting interest rates to contain inflation. But a downward revision to growth in first-quarter wage costs suggested prices were more subdued.

“The trend today looks like confusion to me,” said Scott Merritt, U.S. equities strategist for J.P. Morgan Asset Management. Although today’s job growth data from the Labor Department is expected to provide more clarity on the economy, Mr. Merritt said a benign report would do little to help the market’s uncertainty.

“The employment report will only have an impact if it’s significantly to the upside or downside,” he said. “Otherwise it will create more confusion.”

Strong May sales boosted the retail sector and bolstered optimism about consumers. Oil prices fell further on data showing increased domestic reserves and helped drive the rally.

The Dow climbed 91.97, or 0.82 percent, to 11,260.28.

Broader stock indicators surged. The Standard & Poor’s 500 Index gained 15.62, or 1.23 percent, to 1,285.71; the Nasdaq surged 40.98, or 1.88 percent, to 2,219.86, returning to positive territory for 2006.

The Russell 2000 Index gained 15.49, or 2.15 percent, to 736.50.

Advancers outpaced decliners by almost 4 to 1 on the New York Stock Exchange on lighter volume than on Wednesday.

Bonds recovered from Wednesday’s dive, with the yield on the 10-year Treasury note down to 5.10 percent from 5.13 percent late in the prior session. The U.S. dollar was flat against other major currencies; gold prices declined to about $635 an ounce.

Overseas stock markets recouped earlier losses. Stocks closed moderately higher in Britain, Germany and France.

Asian markets fared somewhat better, with Japan’s Nikkei Index edging up 0.24 percent from three-month lows. However, stocks in Hong Kong tumbled 1.34 percent, as India’s Sensex plunged 3.15 percent.

Investors returned their focus to inflation data Wednesday after minutes from the Fed’s May 10 meeting said its inflation expectations had increased. With the Fed having said that future rate increases will depend on the economy’s health, traders have been particularly mindful of any readings on economic growth and inflation.

Many on Wall Street were looking forward today’s report on monthly hiring, which is considered a primary indicator of economic conditions. But analysts say the market’s uneasiness was likely to persist until the Fed makes its next move at the end of this month.

Retail stocks gained on strong May sales. J.C. Penney jumped $3.95 to $64.79.

Meanwhile, Wal-Mart Stores Inc.’s modest results sent shares down 6 cents to $48.39.

Japanese automakers once again reported outstanding May sales while sales of domestic car brands lagged. Toyota jumped $1.26 to $108.64, and Honda added 41 cents to $33.44, while General Motors slid 3 cents to $26.90.

The Institute for Supply Management’s manufacturing index slid 2.9 points to 54.4, but the prices paid index jumped 5.5 points to 77.

And while first-quarter productivity growth was revised up to 3.7 percent, unit labor costs grew just 1.6 percent versus an initial reading of 2.5 percent, the Labor Department said.

The department added that first-time jobless claims increased by 7,000 to 336,000 last week, compared with predictions for a 9,000 decline. Elsewhere, April construction spending slipped 0.1 percent versus forecasts for a 0.1 percent gain.

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