updated 8/18/2004 9:33:52 AM ET 2004-08-18T13:33:52

Another jump in oil prices pre-empted a strong rally on Wall Street Tuesday, though stocks managed to post modest gains on the strength of the latest consumer price report, which put many investors’ inflation fears to rest for the near term.

Major Market Indices

The three major indexes all finished the session higher, showing resiliency in the face of a new record high in oil futures, fueled by continuing problems for Russian oil giant Yukos. A barrel of light crude was quoted at $46.75, up 70 cents, on the New York Mercantile Exchange.

Stocks managed to stay in positive territory thanks to a better-than-expected Consumer Price Index (CPI) reading. The CPI saw a small drop in July, giving consumers a respite from soaring energy prices. With consumer spending one of the main drivers of the economy, the news cheered investors who have been concerned that higher oil prices could spur inflation.

“You’re going to get some naysayers out there, saying this is just one month, hedging against anything bad coming up, but really, this is great news,” said Bill Groenveld, head trader with vFinance Investments. “I think this could be the start of a smooth, cautious recovery.”

The Dow Jones industrial average was up 18.28 points, or 0.2 percent, at 9,972.83 by the close. The Dow had pushed past the 10,000 mark earlier in the session before news reports on Yukos’ worsening tax situation came out. The last time the Dow closed above 10,000 was Aug. 4.

Broader stock indices finished moderately higher. The Standard & Poor’s 500-stock index was up 2.37 points, or 0.2 percent, at 1,081.71, and the Nasdaq composite index, full of technology stocks, was up 12.41 points, or 0.7 percent, at 1,795.25.

According to the Labor Department, the CPI fell 0.1 percent in July, the first drop in prices since November and a large shift from the price gains in May and June. Without food and energy costs factored in, the CPI rose 0.1 percent, less than Wall Street had forecast.

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Housing construction also saw better-than-expected gains, with the Commerce Department reporting an 8.3 percent rise in home and apartment construction in July, more than making up for the 7.7 percent drop in June.

The economic data reaffirmed that, despite soaring energy costs, the overall economy remained sound and that inflation, at least for now, has been kept at bay. And if oil prices fall from their current record highs, stocks will be poised to make strong gains, analysts said.

“In the short term, there’s enough good news in the economic data to offset oil prices, at least for now,” said Chris Wolfe, global head of equities for J.P. Morgan Private Bank. “Certainly, we can’t see how these oil prices will be sustainable in the long term. We’re ready for a relief rally once the prices start coming down.”

A number of earnings reports from retailers also gave investors a boost. Dow component Home Depot Inc. surged $1.12 to $35.10 after the home improvement retailer reported record sales and a 19 percent increase in second-quarter profits. Home Depot beat Wall Street expectations by 7 cents per share and raised its guidance for future quarters.

Office supply chain Staples Inc. saw its profits rise 39 percent in the quarter, beating expectations by 2 cents per share. Staples, which also announced new ventures in Europe and China, gained 99 cents to $28.87.

Consumer wholesaler B.J.’s Wholesale Club Inc. was up $1.77 at $25.16 after reporting a strong 25 percent rise in second-quarter earnings. The company beat estimates by 5 cents per share.

J.C. Penney Co. matched Wall Street estimates, managing a small profit for the quarter after breaking even a year ago. Penney slipped 27 cents to $38.48 after trading in positive territory most of the day.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 1.26 billion shares, compared with 1.2 billion at the same point Monday.

Overseas, Japan’s Nikkei stock average rose 0.3 percent. In Europe, Britain’s FTSE 100 closed up 0.2 percent, France’s CAC-40 gained 0.5 percent and Germany’s DAX rose 0.2 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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