updated 10/19/2006 7:25:47 AM ET 2006-10-19T11:25:47

The Dow Jones industrial average briefly swept past 12,000 for the first time Wednesday, extending its march into record territory as investors grow increasingly optimistic about corporate earnings and the economy. The blue chip average rose to a new closing high, but fell just short of the 12,000 mark.

Major Market Indices

The index of 30 big-name stocks surpassed the milestone just after trading began, rising as high as 12,049.51, before pulling back as the market’s initial wave of enthusiasm dissipated and investors cashed in some of their gains. The fact that the markets didn’t barrel higher shows some healthy caution particularly given that many companies have yet to report third-quarter results.

It took the Dow 7 1/2 years to make the trip from 11,000, having been pummeled during that time by the dot-com bust, recession and the aftermath of the 2001 terror attacks. That slow trek was a striking contrast with the Dow’s sprint from 10,000 to 11,000 in just 24 days in the spring of 1999, during the heady days of the Internet boom.

The Dow, whose stocks include blue chips such as International Business Machines Corp., Microsoft Corp. and Wal-Mart Stores Inc., has risen 312 points so far this month as oil prices retreated below $60 a barrel and it appeared the economy was headed for a soft landing after more than two years of interest rate increases. Before Wednesday, the Dow had already set closing records seven times during the past two weeks.

The Dow surged as much as 98 points in early trading, but closed the day well off those highs, up 42.66 points, or 0.36 percent, and at a new high. The broader Standard & Poor’s 500-stock index added 1.91 points, or 0.14 percent, while the technology-rich Nasdaq composite index slipped 7.80 points, or 0.33 percent.

The Dow’s quick move past 12,000 Wednesday came after a Labor Department report indicated consumer price pressures are leveling off and third-quarter earnings reports from companies including IBM bolstered investors’ confidence.

Bonds rose, with the yield on the benchmark 10-year Treasury falling to 4.76 percent from 4.77 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude settled down $1.28 at $57.65 a barrel on the New York Mercantile Exchange amid growing concern ahead of an OPEC meeting Thursday; doubts have swirled over whether OPEC’s members can agree on an immediate production cut.

Investors’ relief over oil’s decline from a high of $78.40 has given Wall Street an unusually strong October and powered the Dow higher; some of the market’s worst days, including the 1929 and 1987 crashes, have been in October. And it was on Oct. 9, 2002, in the depths of the bear market, that the major indexes fell to their lowest levels in five and six years — the Dow closed that day at 7,286.27.

The Dow has recovered faster from the stock market’s troubles than the S&P 500 and the Nasdaq have done. All three indexes peaked in early 2000 before dropping precipitously, but the S&P 500 and Nasdaq suffered more because of the heavy representation of high-tech issues among their stocks.

The S&P 500, the index used as a benchmark by most market professionals, is getting closer to its peak of 1,527.46. But the Nasdaq, which was bloated by its vast number of tech stocks, remains well below its high of 5,048.62.

Some analysts downplayed the Dow’s achievement, noting that many smaller stocks had already recovered.

“Focusing on this one index is very short sighted,” said Tom McManus, an investment strategist with Banc of America Securities. “What you’re seeing here is the mega-cap stocks playing catch up to the rest of the market, and not even doing it robustly either. We’ve seen very impressive gains for the so-called broad market, but the Dow just isn’t as relevant any longer.”

Al Goldman, chief market strategist at A.G. Edwards, said too often investors rush into the market when milestones are reached and then arrive in time for the markets to pull back.

“The market needs a pause to refresh. More often than not, you’re short-term extended and then you sell back down and then go into a normal and healthy level.”

The drop in the September consumer price index, the key measure of inflation, was aided by a decline in energy costs. The closely followed core inflation figure, which excludes energy and food, rose a modest 0.2 percent, in line with expectations. The increase helped advance the notion that inflation might remain in check, giving the Federal Reserve room to continue to hold on interest rates.

In other economic data, the Commerce Department reported a stronger-than-expected increase in September housing starts . The figure rose 5.9 percent, rather than falling 1.2 percent as had been expected. Building permits, considered a less-reliable figure, fell 6.3 percent.

IBM rose $2.87, or 3.3 percent, to $89.82 after the company showed a nearly 50 percent jump in its third-quarter profit , topping Wall Street’s forecast.

Intel advanced 21 cents to $21.11. Although the world’s largest chipmaker posted lower earnings and revenue, results were better than Wall Street expected . The company’s stock had fallen Wednesday ahead of its report amid concerns about profits and a downgrade.

Mellon Financial Corp., a trust bank, rose $1.11, or 2.9 percent, to $39.43 after posting a 14 percent increase in its third-quarter profit amid growth in its asset management operations.

Overseas, Japan’s Nikkei stock average closed up 0.25 percent. Britain’s FTSE 100 closed up 0.68 percent, Germany’s DAX index was up 1.11 percent and France’s CAC-40 was up 1.10 percent.

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