Dow sets record for 3rd straight day

NEW YORK (CNNMoney.com) -- The Dow Jones industrial average rose to a record high for the third straight session Thursday, as investors welcomed plunging oil prices and a mild read on inflation.

However, the slide in oil and other commodities took its toll on the underlying stocks, while tech shares fought to stay positive amid discouraging news from Dell and Applied Materials.

The Dow (up 54.11 to 12,305.82, Charts) added about 0.4 percent, ending at a record close for the 17th time since Oct. 3. Earlier in the afternoon, the blue-chip average touched a record trading high of 12,325.91 before pulling back slightly.

The broader S&P 500 (up 3.19 to 1,399.76, Charts) index added 0.2 percent, ending at a new six-year high. The tech-fueled Nasdaq composite (up 6.31 to 2,449.06, Charts) rose 0.2 percent, ending at its highest point since February 2001.

Treasury prices slipped, raising the corresponding yields. In addition to oil, gold and other commodities slipped.

U.S. light crude oil for December delivery tumbled $2.50 to settle at $56.26 a barrel on the New York Mercantile Exchange, a decline of over 4 percent and its lowest point this year.

That was bad news for oil stocks, including Exxon Mobil (down $2.13 to $72.67, Charts), which declined, but was encouraging for the rest of the market.

"Every day there's a new reason for the advance and so today it's oil prices breaking down to a new yearly low," said Donald Selkin, director of research at Joseph Stevens.

Lower oil and gas prices means less inflationary pressure. It also means more money stays in the hands of consumers.

Selkin said that while the day's advance was positive, he remains concerned that on a short-term basis, stocks seem primed for a correction.

After the close, Hewlett-Packard (Charts) reported higher quarterly earnings and revenue that topped expectations. The company also offered a bullish outlook for the current period, sending shares higher in extended hours trading. (Full story).

Also after the close, Starbucks reported lower quarterly profit in its fiscal fourth quarter and also issued a sales and earnings forecast for fiscal 2007 in a range that could miss analysts' expectations. Starbucks (Charts) fell 5 percent in extended hours trading.

No market-moving earnings reports are due Friday. Instead, investors will be attuned to the direction of the oil market, as well as October readings on housing starts and building permits.

It was the day's read on inflation that gave investors hope for a so-called soft landing for the economy in coming months.

The government said the Consumer Price Index, its main inflation gauge, fell 0.5 percent in October, as it did in September. Economists surveyed by Briefing.com thought it would fall 0.3 percent.

But investors focused more on the so-called "core" CPI, which excludes volatile food and energy prices, and was up just 0.1 percent, versus forecasts for a rise of 0.2 percent. Core CPI rose 0.2 percent last month.

"The CPI report was good news for investors, in that it shows inflation pressures continue to abate," said Alan Gayle, senior investment strategist at Trusco Capital Management.

"But the market has had a strong run and has already prices in a lot of good news," he said. "So this CPI report doesn't have the same impact it used to."

Since bottoming in July, stocks have been rising, thanks to lower oil prices, robust quarterly earnings and an apparent end to the Fed's rate-hiking campaign. Also supporting the rally: bets the economic slowdown won't result in recession, keeping inflation in check.

Wednesday's economic news - a regional read on manufacturing and the minutes from the last Federal Reserve policy meeting - reinforced the current economic outlook. Thursday's economic news did too, including the CPI, but the market's reaction was modest, perhaps because stocks have already rallied so much this year.

In addition, comments from a pair of Fed officials painted a less upbeat view of the inflation picture.

Chicago Fed President Michael Moskow said he sees the possibility of more rate increases to cool inflation, even though economic growth is likely to be below trend for the next year or so. St. Louis Fed President William Poole said that while inflation pressures are waning, they remain an issue.

In other economic news, industrial production rose 0.2 percent in October, just short of forecasts, while capacity use rose to 82.2 percent, above expectations.

The November Philadelphia Fed survey - released at midday - showed strength in factory activity in the Mid-Atlantic region after two weak months.

Treasury bond prices slipped in response to both the Fed officials' comments and the Philly Fed index. The decline lifted the yield on the benchmark 10-year note to 4.66 percent, from 4.62 percent late Wednesday. Bond prices and yields move in opposite directions.

Gains were pretty broad based, with 23 out of 30 Dow issues rising, including McDonald's (up $0.57 to $41.67, Charts), Altria (up $1.32 to $83.57, Charts) and Microsoft (up $0.35 to $29.47, Charts).

Dow stock Boeing (up $1.63 to $88.71, Charts) continued to advance one session after reports said the aircraft maker was poised to receive $10 billion in deals over the next few weeks.

Cisco Systems (up $0.55 to $27.15, Charts) said late Wednesday that its board has approved buying back an additional $7 billion in common stock, building on its existent buyback program. Cisco shares rose Thursday.

But other technology sector news was less positive.

Dell (down $0.65 to $25.10, Charts) said late Wednesday that it will delay filing its quarterly report until later in the month, instead of Thursday evening, as had been expected. (Full story). The stock sank about 2.5 percent.

Applied Materials (down $0.67 to $17.98, Charts) reported higher quarterly earnings and revenue late Wednesday that was nonetheless shy of forecasts. The company also warned that sales and earnings in the current quarter will miss forecasts. Shares slipped 4 percent Thursday.

BEA Systems (down $2.58 to $13.11, Charts) slumped 16.4 percent in active Nasdaq trading after the software maker reported quarterly revenue late Wednesday that was short of forecasts.

In other news, Clear Channel (up $1.24 to $35.36, Charts) has agreed to an almost $19 billion deal to go private, while Reader's Digest (up $1.19 to $16.70, Charts) has agreed to a $2.4 billion buyout.

Market breadth was mixed. On the New York Stock Exchange, winners beat losers by eight to seven on volume of 1.68 billion shares. On the Nasdaq, advancers barely edged decliners as nearly 2.09 billion shares changed hands.

In currency trading, the dollar gained versus the euro and the yen.

COMEX gold fell $2.10 to settle at $621.70 an ounce.

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-- CNNMoney.com staff writer Rob Kelley contributed to this report.