NEW YORK: A tame inflation report boosted Wall Street Friday amid hopes that easing price pressures will enable the Federal Reserve to refrain from further interest rate hikes.
The Dow Jones Industrial Average climbed 33.38 points (0.29%) to 11,560.77 while the Nasdaq composite advanced 6.86 points (0.31%) to 2,235.69.
The broad-market Standard and Poor's 500 index increased 3.59 points (0.27%) to 1,319.87.
The gains capped a strong week for Wall Street, with the broad market gaining more than 1.6%, amid increasing indications that US economic growth is moderating, but not collapsing.
Ahead of the opening, the government said US consumer prices increased 0.2% in August, a report in line with most forecasts and suggesting a cooling of inflationary pressures.
The core rate of the consumer price index (CPI) – excluding the volatile components of food and energy – also showed a 0.2% rise, the Labor Department said.
Analysts said the report appears to confirm the Fed's view that inflation is moderating, making it less likely that the central bank will resume rate hikes. The Fed paused in August after 17 consecutive quarter-point increases to bring the federal funds rate to 5.25%.
“The slowdown in US economic growth is helping cool price pressures, which should keep the Fed on the sidelines next week,” said Jennifer Lee, economist at BMO Nesbitt Burns.
Dick Green at Briefing.com called the report “bullish for stocks,” adding that the figures “indicate that the soft landing in the economy is proceeding almost exactly as the Fed would draw it up.”
But the rally lost some steam late in the day amid concerns that the market was overextended, and was hurt when oil prices rose back above US$63 a barrel, analysts said.
Some market watchers said the sharp drop in energy costs in the weeks since the CPI data were collected will likely mean even tamer inflation ahead, further brightening the market outlook.
“Inflation fears continue to subside, and along with it fears of the Fed tightening rates,” said Fred Dickson, market strategist at DA Davidson.
“Our sense is that if the Fed decides to leave interest rates unchanged next Wednesday, the stock market will rally sharply on that news. Our outlook through year-end and into 2007 remains positive.”
Among active stocks, Microsoft rose 52 cents to US$26.85 a day after unveiling its new Zune music player to compete against the iPod from Apple, down seven cents at US$74.10.
Elsewhere in technology, Adobe rallied US$3.35 or nearly 10% to US$37.83 after the software group released profits and revenues for the past quarter above most forecasts.
Excelon rose 1.44 to US$59.21 after the utility firm formally cancelled its merger with Public Service Enterprise Group, down 4.15 at US$62.
Ford Motor Co slid 1.07 to 8.02 after the automaker announced plans to cut a third of its salaried workforce in North America, or 14,000 jobs, and close more plants as it accelerates its restructuring plan in the face of massive losses.
Shares of German-US auto giant DaimlerChrysler slumped US$3.54 to US$49.36 after the company issued a profit warning in the wake of anticipated losses at its struggling US arm, Chrysler.
Bonds were mixed. The yield on the 10-year US Treasury bond rose to 4.798% from 4.793% Thursday and that on the 30-year bond held steady at 4.919%.
Bond yields and prices move in opposite directions. – AFP