msnbc.com news services
updated 11/17/2006 8:58:52 AM ET 2006-11-17T13:58:52

Stocks gained for a fifth straight session Thursday, with the Dow Jones industrial average achieving its third straight record close on optimism over falling prices and an economy that appears to be gliding in for a 'soft landing.'

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The Labor Department said falling gas prices helped push the Consumer Price Index lower last month, and energy prices could head lower still as oil prices plunged on futures markets to their lowest level of the year.

Investors also took a cue from a wave of major acquisitions suggesting that the flurry of private equity buyouts would continue. Clear Channel Communications Inc., the giant owner of radio stations and billboards, is being taken private by investors in a deal worth nearly $19 billion news, while Reader’s Digest Association Inc. is going private in a $1.6 billion deal.

Stocks also gained after the Philadelphia Fed reported that its index of manufacturing conditions rose to 5.1 from negative 0.7 in October. A positive reading signifies growth. Regional economic conditions “improved slightly” in November, but indicators for new orders and employment weakened.

Ethan Harris, chief U.S. economist at Lehman Bros., said stocks are likely to keep rising because of strong corporate profits and balance sheets, even as the overall economy could show strains.

“It’s much too early to declare victory over inflation,” Harris said. “You’ve got a significant amount of labor cost pressure building. Labor costs are a double whammy for stocks because they can slice into earnings and they can mean a tougher Federal Reserve.”

Kim Caughey, equity research analyst at Fort Pitt Capital Group, also remains concerned about wage increases but notes that third quarter profits were generated when energy costs were higher. Crude hit its high for the year in July.

“I think these numbers validated the thesis about energy prices having been the main component of inflation early this year,” she said of the Consumer Price Index, adding that she is now mainly concerned about increases in wages.

The Dow Jones industrial average finished the day up 54.11 points, or 0.4 percent. It was the 17th time the index has hit a record close since early October.

Financials and the consumer discretionary sectors led the rally, while energy stocks moved lower as commodity prices fell. The price of light, sweet crude fell more than $2 a barrel to its lowest level of the year on the New York Mercantile Exchange.

Bonds fell sharply, with the yield on the benchmark 10-year Treasury note rising to 4.66 percent from 4.62 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.

In economic news, the 0.5 percent drop in the Consumer Price Index , the key measure of inflation, matched the decline in September and marked the first two-month drop since late last year. The core inflation figure, which strips out volatility-prone prices for food and energy, rose 0.1 percent, the smallest increase in eight months.

“I would not say that number means we are out of the woods on inflation," St. Louis Fed President William Poole said. "(It is) another scrap of news that is in the right direction.”

He also repeated a view he voiced earlier this week that current Fed policy was “about right” and the odds for interest rate hikes or cuts in the future was “roughly symmetrical”.

The Labor Department also reported the number of Americans seeking unemployment benefits fell by 2,000 to 308,000 last week, the smallest reading in a month. Last month, the nation’s unemployment fell to a five-year low.

In corporate news, Clear Channel, the country’s No. 1 owner of radio stations, agreed to be taken private for about $18.7 billion by an investment group led by Thomas H. Lee Partners LP and Bain Capital Partners LLC. The deal includes about $8 billion in debt. Clear Channel rose $1.24, or 3.6 percent, to $35.36.

Reader’s Digest rose $1.19, or 7.6 percent, to $16.70 after agreeing to be acquired for about $1.61 billion by an investment consortium led by private equity group Ripplewood Holdings LLC.

Dell Inc. fell 65 cents, or 2.5 percent, to $25.10 after the computer maker delayed its third-quarter earnings report and announced federal regulators had launched a formal investigation into the company . The company said it didn’t know the specific nature of the investigation.

Overseas, Japan’s Nikkei stock average closed down 0.49 percent. Britain’s FTSE 100 closed up 0.40 percent, Germany’s DAX index was up 0.19 percent and France’s CAC-40 fell 0.11 percent.

The Associated Press contributed to this report.

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