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Dow Climbs to Six-Year High

The index gains 0.6% as earnings beat forecasts. The 10-year Treasury yield climbs to 5.11%.

April 27, 2006|From Times Wire Services

The Dow Jones Industrial Average climbed to a six-year high as corporate earnings beat analysts' forecasts and sales of new homes surged.

"Earnings have been quite positive, and I think that's the No. 1 reason to buy stocks and the No. 1 reason why this market has held together," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons in St. Louis.

Hovnanian Enterprises and Pulte Homes set the pace as home builders rallied on a government housing report. Sales of new homes jumped 14%, the most since April 1993, to an annual rate of 1.21 million, the Commerce Department said. Economists had expected a 1.11-million sales rate.

Although steep gains in home sales and orders for durable goods fed worries about a need for higher interest rates to control growth, optimism about the strength of the underlying economy appeared to prevail, said Ken McCarthy, chief economist for vFinance Investments.

"Right now, you could say we're sort of at a sweet spot, where we have healthy growth and reasonably high interest rates," McCarthy said. He added that the economic numbers are showing increased investments by businesses, which tend to spur non-inflationary growth.

The Federal Reserve's beige book -- a survey of its 12 district banks -- underscored the economy's health despite volatility in energy costs. Traders awaited more signals from Fed Chairman Ben S. Bernanke's congressional testimony expected today.

The Dow Jones industrial average jumped 71.24 points, or 0.6%, to 11,354.49, its highest close since January 2000. The index was up as much as 96 points during the session before pulling back.

Broader stock indicators also rose. The Standard & Poor's 500 index added 3.67 points, or 0.3%, to 1,305.41, and the Nasdaq composite index gained 3.33 points, or 0.1%, to 2,333.63.

Bond yields continued to climb, with the 10-year Treasury note rising to 5.11% from 5.07% on Tuesday. Although many on Wall Street fretted about the 10-year note crossing 5% for the first time in four years, that level was mostly a psychological barrier and breaking through might actually be benefiting the market, said Scott Merritt, U.S. equity strategist for JPMorgan Asset Management.

"I would actually view that as a positive influence on the equities market," Merritt said. "The Treasury yield curve moving up is doing the job for the Fed" by lifting borrowing costs, which weigh on consumer spending and could limit economic growth.

Elsewhere, the dollar was little changed against other major currencies and gold prices inched higher.

Crude futures fell for a third straight session after a government report indicated further declines in motor fuel demand, while oil and gasoline reserves also shrank. A barrel of light crude dropped 95 cents to settle at $71.93 on the New York Mercantile Exchange.

Wall Street was unfazed by the Fed's beige book survey, which said rising energy costs were hurting businesses. Competition, however, was limiting their ability to raise prices and recoup those costs, the central bank said.

The Commerce Department said orders for durable goods jumped 6.1% in March, more than triple the 1.8% economists had predicted.

In other market highlights:

* Anheuser-Busch climbed $2.27 to $44.90. The world's largest brewer reported better-than-expected first-quarter profit on the biggest sales gain in more than a year. Net income was 64 cents a share. JPMorgan Chase analyst John Faucher, who is top-ranked by StarMine, estimated 54 cents a share, including a 2-cent cost for stock-option expenses.

* Colgate-Palmolive rallied $1.60 to $58.95. The company said first-quarter profit, excluding some items, increased to 70 cents a share as new brands lifted sales in Latin America. The average estimate of analysts surveyed by Thomson Financial was 66 cents.

* The Bloomberg Homebuilders index rose 1.6%. Pulte, the country's second-largest builder, gained $1.14 to $39.04. Hovnanian added 92 cents to $40.63. D.R. Horton, the No. 1 U.S. home builder, was up 51 cents to $31.33.

* GM led the Dow higher, jumping $1.74 to $23.15. Merrill Lynch upgraded the automaker one notch to "neutral," saying its restructuring was moving in the right direction.

* PepsiCo, the world's No. 2 soft-drink maker, added 36 cents to $57.86. The company said first-quarter profit rose 12% to $1.02 billion, or 60 cents a share, on strong demand for Frito-Lay snacks and Gatorade drinks.

* Amazon.com late Tuesday reported a 35% drop in earnings. But that still met Wall Street targets, and shares rose 24 cents Wednesday to $35.79.

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