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Stocks rally as oil, inflation fears ease

A drop in crude prices and a modest rise in a key indicator soothe investors. The Dow gains 165 points.

June 14, 2008|Tim Paradis | The Associated Press

Wall Street ended a turbulent week with a sharp gain Friday after government readings on inflation and a drop in oil prices eased worries about the effect of rising prices.

The Dow Jones industrial average jumped 165 points. For the week, the Dow gained 97 points, but broader indexes lost ground.

The consumer price index grew 0.6% last month, slightly more than the 0.5% increase economists had estimated. The core inflation reading, which excludes often volatile food and energy prices, edged up a more moderate 0.2%, as expected.

The fact that the run-up seemed largely contained to food and energy appeared to bolster the case for the Federal Reserve to keep rates unchanged when it meets June 24-25 and perhaps to hold off on boosting rates for a number of months.

Comments this week by officials of the central bank, however, make clear that they are mindful of rising prices and the taxing effect they can have on the economy.

And the rise in energy costs is leaving some consumers in a downcast mood. The Reuters/University of Michigan preliminary reading on consumer sentiment neared a 30-year low this month, falling to 56.7 from 59.8 in May.

Friday's stock market session saw the Dow rise 165.77 points, or 1.4%, to 12,307.35.

Broader stock indicators also advanced. The Standard & Poor's 500 index climbed 20.16 points, or 1.5%, to 1,360.03, and the Nasdaq composite index surged 50.15 points, or 2.1%, to 2,454.50.

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

The day before, stocks rose moderately after a steep sell-off Wednesday that came as oil prices rose, stirring inflation worries.

For the week, the Dow gained 0.8%, the S&P 500 inched down less than 0.1% and the Nasdaq composite index dropped 0.8%.

The inflation findings left the bond market mixed after a week in which yields surged. Some short-term yields were slightly lower Friday but the benchmark 10-year T-note rose to 4.26% from 4.21%.

The dollar advanced against other major currencies, while gold prices edged up.

Oil prices retreated a day after a sharp rebound. Crude futures lost $1.88 to settle at $134.86 on the New York Mercantile Exchange.

Michael Strauss, chief economist at Commonfund, said the stock advances that were seen Thursday and Friday belied some of the unease over inflation. Investors remain worried that inflation, while somewhat in check now, could pop in the coming months, he said.

"Behind the scenes of the euphoria . . . they're still very nervous about financial market conditions and they're still very nervous about economic conditions," Strauss said.

In other market highlights:

The Russell 2,000 index of smaller-company stocks rose 13.77 points, or 1.9%, to 733.61, and ended the week down 0.9%.

Anheuser-Busch fell 28 cents to $61.12. The beer giant was said to be holding preliminary talks with Mexican brewer Grupo Modelo, possibly as a way to fend off an unsolicited $46-billion bid from Belgian brewer InBev.

Lehman Bros. Holdings rose $3.11, or 14%, to $25.81 after sinking over the preceding four days on the firm's warning of a nearly $3-billion fiscal second-quarter loss.

Google jumped $18.56, or 3.4%, to $571.51. Yahoo announced a Web search alliance late Thursday with its Internet rival and said takeover talks stemming from Microsoft's $47.5-billion buyout offer last month had ended with no deal. Yahoo fell 5 cents to $23.47, and Microsoft rose 83 cents, or 2.9%, to $29.07.

Exxon Mobil gained $1.30, or 1.5%, to $88.36. The oil giant plans to get out of the retail gasoline business by selling its U.S. stations to distributors.

Coca-Cola dropped $1.72, or 3%, to $55.42 after its second-largest bottler said earnings this year would fall short of forecasts.

Rival PepsiCo fell 41 cents to $67.54.

Apollo Group jumped $3.73, or 7.7%, to $52.24. An analyst upgraded the for-profit education company, citing its plans to raise tuition prices at its University of Phoenix.

Stocks rallied overseas. Key indexes gained 0.6% in Japan, 0.2% in Britain, 0.8% in Germany and 0.2% in France.

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