Stocks and bonds rallied broadly Wednesday as investors took surprisingly blunt remarks from a Federal Reserve official and weaker-than-expected manufacturing data as signs that the Fed was near the end of its rate-hiking campaign.
A late jump in crude futures, triggered in part by news of a refinery problem in Texas and concerns of tight supplies later in the year, sent oil prices above $54 a barrel and damped enthusiasm on Wall Street.
But the Dow Jones industrial average still finished with a gain of nearly 1% and the yield on the benchmark 10-year Treasury note continued its plunge below 4%, settling at a 13-month low of 3.89%, down from 3.98% on Tuesday. Yields also tumbled on shorter-term Treasury issues.
The Dow, which had been up as much as 119 points, closed with a gain of 82.39 points, or 0.8%, at 10,549.87. The broader Standard & Poor's 500 index rose 10.72 points, or 0.9%, to 1,202.22, and the technology-heavy Nasdaq composite index climbed 19.64 points, or 1%, to 2,087.86.
In moderate trading, winners swamped losers by 3 to 1 on the NYSE and by 2 to 1 on Nasdaq.
Stock trading was cut off four minutes early because of a computer glitch at the New York Stock Exchange. The Big Board said trading would resume as scheduled this morning.
Richard Fisher, head of the Federal Reserve branch in Dallas, helped touched off Wednesday's rally when he told CNBC that the central bank was "clearly in the eighth inning of a tightening cycle," calling the Fed's scheduled meeting at the end of this month "a ninth inning."
A surprisingly soft report from the Institute for Supply Management on national manufacturing activity also gave investors comfort, lending credence to the idea that the Fed indeed might only need to raise rates once more to keep inflation benign. In the past year, the Fed has boosted its key federal funds rate eight times in quarter-point increments, to 3%. The federal funds rate sets costs for overnight bank lending and influences other rates.
The institute said its manufacturing index slipped from 53.3 in April to 51.4 in May, the lowest level since June 2003. A measure of prices paid fell to 58 from 71 in April -- a positive sign for investors concerned about inflation.
"The bond market, in a word, sees a significant economic slowing," said Richard DeKaser, chief economist at National City Corp. in Cleveland.
Still, he and other strategists said those who contend the economy is running into a "soft patch," which could make the Fed reluctant to squeeze credit too hard, were seizing on selective data.
"The economy is decelerating, but it's going from fifth to fourth gear, not straight to second gear," said Jack Malvey, chief global fixed-income strategist at Lehman Bros. in New York.
Malvey speculated that Fisher -- who recently became a voting member of the Fed's rate-setting panel -- may have been speaking out of turn and that more hikes could be coming later in the year.
"You might be in the eighth inning, but it's a three-game series," Malvey said.
Economists said the Fed remains worried about, among other things, a housing "bubble" that could damage the economy when it bursts -- a concern that may be growing as long-term interest rates fall and keep mortgage costs down.
The bond rally is "throwing gasoline on the fire that is today's housing market," DeKaser said.
By any measure, the bond market continues to confound the expectations of most analysts, who figured long-term interest rates were likely to rise this year as the Fed jacked up short-term rates.
"This is extraordinary," said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco. "I'm at a loss with everyone else as to the extent of it."
In the currency market, further strength for the dollar also gave Treasury securities a boost as uncertainty over the future of the European Union sent investors clamoring for American assets. The euro fell to an eight-month low after Dutch voters defeated the proposed EU constitution in a referendum; French voters delivered a similar verdict Sunday.
Among the equity highlights:
* Google gained $10.73 to a record $288 after a Credit Suisse First Boston analyst raised his price target to $350, citing a growing market for Internet search-based advertising.
Among other dot-coms, auctioneer Ebay added $1.11 to $39.11 and Web portal Yahoo rose $1.22 to $38.42.
* Energy stocks benefited from the latest jump in oil prices. Exxon Mobil gained 95 cents to $57.15 and Chevron advanced 97 cents to $54.75.
* Several housing-related stocks got a lift, including Calabasas-based lender Countrywide Financial, which gained 45 cents to $37.62, and mortgage giant Freddie Mac, which added $1.60 to $66.64.
Among builders, D.R. Horton rose 99 cents to a record $35.56, Pulte Homes zipped $1.98 to $78.43 and Ryland Group rallied $1.30 to $69.80 after a UBS analyst lifted her rating on the Calabasas company to "buy" from "neutral."
But Hovnanian Enterprises shed $1.33 to $60.77 after the luxury homebuilder forecast earnings for the current quarter below analysts' estimates.
* Kohl's added $2.36 to $51.05 after the retailer said sales rose at stores open at least a year.
* Foreign markets rallied, including a 2.9% surge in Brazil. In Europe most markets advanced even as the euro sank. The German market jumped 1.5% and the French market was up 1.4%.