- The Washington Times - Wednesday, May 31, 2006

NEW YORK (AP) — Wall Street closed out an uneasy May with a solid advance yesterday, even after minutes from the last Federal Reserve meeting indicated that inflation pressures raised the chance of another rate increase in June. The indexes ended the month broadly lower.

Investors have been searching for clarity on the Fed’s next move after the central bank said in early May that higher rates could be needed to curb soaring energy prices. The notes from the Fed’s May 10 meeting said its inflation expectations have increased somewhat and left only a slight hint of a pause in June.

But Douglas Porter, a senior economist for BMO Nesbitt Burns, said there were no major surprises in the minutes given recent signs of economic strength and high oil prices. Stocks tumbled after the Fed report was released but regained their footing shortly afterward.

However, “the overall impression the minutes leave is that there’s a bit more concern about inflation than in previous minutes,” Mr. Porter said. “I think it comes across loud and clear that these concerns are starting to weigh heavily on Fed members.”

After an upbeat start to May, a muddled inflation picture left stocks languishing during the last half of the month, and investors still appeared to be nervous. On Tuesday, a jump in oil prices, weakening consumer strength and poor sales at Wal-Mart Stores Inc. triggered a 184-point slide for the Dow Jones Industrial Average.

At yesterday’s close, the Dow gained 73.88, or 0.67 percent, to 11,168.31, after rising as many as 89 points earlier.

Broader stock indicators were also higher. The Standard & Poor’s 500 Index rose 10.25, or 0.81 percent, to 1,270.09; the Nasdaq Composite Index added 14.14, or 0.65 percent, to 2,178.88, but still showed a loss for the year.

The Russell 2000 Index of smaller companies gained 9.97, or 1.4 percent, to 721.01.

Bonds slumped on the prospect of rising interest rates, with the yield on the 10-year Treasury note climbing to 5.13 percent from 5.08 percent late Tuesday. The U.S. dollar advanced against the Japanese yen and was flat versus European currencies; gold prices stood near $650 an ounce.

Lower crude futures helped calm inflation jitters.

The Fed’s minutes capped a highly volatile month. Hope that the central bank was nearly done lifting rates carried stocks to six-year highs in early May, but the Fed’s warning that surging commodities prices remain a problem ignited a two-week sell-off that dragged down the Dow 5 percent.

For May, the Dow lost 1.75 percent, the S&P; 500 declined 3.09 percent and the Nasdaq plunged 6.19 percent.

Although the minutes signaled no major changes in the Fed’s stance, policy-makers expressed greater concerns about escalating prices and reinforced views that the central bank will bump the key short-term lending rate a 17th consecutive time to 5.25 percent at its June 28-29 meeting, Mr. Porter said.

Concerns that rising U.S. lending rates will cramp global growth has roiled overseas markets this week. Yesterday, Japan’s Nikkei stock average plunged 2.47 percent, while stocks in Singapore slid 2.4 percent and the Indian market tumbled 3.6 percent.

European markets, however, recouped some of their recent losses, with Britain’s FTSE 100 adding 1.29 percent, Germany’s DAX surging 1.25 percent and France’s CAC-40 higher by 0.74 percent.

Costco Wholesale Corp. said its third-quarter profit grew 12 percent but just missed analyst estimates, although its sales came in above targets. Costco slid 63 cents to $52.93.

ADC Telecommunications Inc. is acquiring fellow equipment maker Andrew Corp. in a $2 billion stock swap worth $12.76 per share. ADC also posted a 32 percent slide in quarterly earnings. Andrew rose 34 cents to $10.12, and ADC lost $4.46 to $17.92.

Advancers outpaced decliners by almost 3 to 1 on the New York Stock Exchange.

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