NEW YORK (CNNfn) - The Dow Jones industrial average climbed to a record high Thursday and the Nasdaq composite index reversed most of the week's severe losses after a government report calmed investors' worst fears about rising interest rates.|
News that prices at the producer level made scant gains last month gave Wall Street hope that any Federal Reserve interest-rate hike ahead would be small. And a separate report showing strong consumer spending bolstered expectations for buoyant corporate profits.
Stocks rose on the news. The Dow Jones industrial average leapt 31.33 points to 11,582.43, surpassing its record of 11,572.20 set Monday.
The Nasdaq composite index had its fifth biggest point gain on record, rising 107.19 points, or nearly 3 percent, to 3,957.21, after falling about 5 percent in the two previous trading sessions. Four of the five most heavily weighted Nasdaq stocks -- MCI WorldCom (WCOM), Cisco (CSCO), Microsoft (MSFT) and Dell (DELL) - saw gains.
The tech-heavy Nasdaq has now swung more than 100 points in six of the year's nine trading sessions -- volatility that can only be called extreme.
The broader S&P 500 gained 17.43 to 1,449.68.
More stocks rose than fell; advancers on the New York Stock Exchange beating decliners 1,885 to 1,171. Volume was heavy, with 1 billion shares changing hands.
In currency markets, the dollar gained against the yen and euro. Bonds rose.
Market friendly PPI
December's Producer Price Index rose a modest 0.3 percent, meeting analysts' forecasts. And the core rate, which excludes the volatile food and energy sector, climbed just 0.1 percent, the Labor Department said.
With the report's suggestion of contained inflation, analysts now see increased likelihood that the Federal Reserve will hike interest rates by just a quarter of a percentage point next month -- and not the half point some had feared.
"The numbers support (the idea) that the economy is growing and inflation isn't as big as concern as everybody seems to think that it is," Robert Stein, senior economist at Stockbrokers.com told CNNfn.
The prospect of a lower-than-feared rate hikes helps stocks, because climbing rates raise borrowing costs, crimping corporate profits. Bond yields fell Thursday, making fixed-income securities less attractive than stocks.
Still, Alfred Kugel, senior investment strategist at Stein Roe Farnham, says higher interest rates won't do significant damage to the stock market (506K WAV) (506 AIFF).
Separately, retail sales advanced at a 1.2 percent pace in December, the Commerce Department said. Analysts said the greater-than-expected rise suggests buoyant consumer spending and bodes well for corporate profits.
Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum, called the retail sales figures positive for equity investors.
"The economy is still strong, earnings will be good, and that bodes well for the stock market," Hyman said.
In Thursday's biggest merger announcement, Charles Schwab (SCH) rose 2-1/2 to 40-1/8 after the nation's fourth-biggest brokerage said it is buying U.S. Trust (UTC) for $2.7 billion in stock. U.S Trust soared 54-1/8 to 133.
Schwab's move marks the first major financial merger since Congress last year overturned Depression-era banking laws. Analysts expect more deals within the financial services industry ahead.
Reflecting that optimism, bank stocks rose. J.P. Morgan (JPM) gained 3-3/16 to 122-13/16. Wells Fargo (WFC) jumped 2-1/8 to 40-7/16. Chase Manhattan (CMB) leapt 1-1/16 to 71-5/16.
In other deals, chipmaker Applied Materials (AMAT) fell 2-9/16 to 124-1/2 after saying it will buy Etec Systems Inc. (ETEC), a semiconductor equipment maker, for about $1.78 billion in stock. Etec surged 25-15/16 to 75-13/16.
Intel down before 4Q results
Intel (INTC) fell 3/16 to 91-1/16 ahead of its fourth- quarter earnings results. Ultimately, the world's biggest computer-chip maker posted fourth-quarter earnings that beat Wall Street's expectations, a development that could bode well for tech stocks Friday.
"I think the Intel number coming out looks wonderful," Richard Plum, of Phoenix Partners told CNNfn's Street Sweep. "That will give impetus for the techs to rally."
In other stocks, Warner-Lambert (WLA) jumped 5-1/16 to 91-7/8 after the drug maker's board said it would open talks with Pfizer Inc. about its unsolicited $77.7 billion bid. Pfizer (PFE) rose 1-11/16 to 36-13/16, and American Home Products (AHP), with which Warner-Lambert already has a merger agreement, gained 7/16 to 42-5/8.
Shares of America Online (AOL) and Time Warner (TWX) gained Thursday following two days of big declines since announcing their $182 billion merger Monday. AOL rose 5-3/16 to 65-1/4. Time Warner, the parent company of CNNfn, climbed to 4-3/8 84.
Apple Computer (AAPL) jumped 9-9/16 to 96-3/4 following Morgan Stanley Dean Witter's upgrade of the computer maker to "outperform" from "neutral."
UAL Corp. (UAL), parent of United Airlines, tanked 9-7/8 to 64-7/8 after saying it expects earnings this year of $7-$9 a share, below analysts' forecasts.
The losses, along with those of other airlines, helped send the Dow Jones transportation average down 43.35 points, or 1.48 percent, to 2,892.89.
(Click here for a look at CNNfn's hot stocks)
(Click here for a look at CNNfn's tech stocks)