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Stocks rally despite bad news on inflation

Stock markets rallied to close up Wednesday despite inflation data that made another Federal Reserve rate hike nearly certain.
/ Source: The Associated Press

Stocks rebounded Wednesday, with the Dow Jones industrial average climbing more than 110 points. The jump pulled Wall Street out of a two-week decline that had wiped out the year’s gains in every major index.

Stocks gained momentum in late afternoon trading after a largely lackluster session marked by mixed reactions to the Labor Department’s . Consumer-level inflation grew in May at an annual rate of 2.4 percent, making another Federal Reserve rate hike a near certainty and putting an end to traders’ fretting about the possibility.

Federal Reserve chairman Ben Bernanke and a raft of Fed governors have said anything above a 1 to 2 percent rate of inflation is outside their “comfort zone.”

Stocks have fallen for six of the last seven trading days on inflation fears, with the Dow having lost more than 541 points over the previous seven sessions. Wednesday gains put the Dow back into positive territory for the year, but the Standard & Poor’s 500 and the Nasdaq composite index remain lower.

The Wall Street adage, “sell on the rumor, buy on the fact,” held for most of the session. While broad indexes turned negative for part of the afternoon, they saw nothing like the dramatic selloffs of previous sessions.

“Today is a reversal day,” said John C. Forelli, portfolio manager for Independence Investment LLC in Boston

According to preliminary calculations, the Dow Jones industrial average rose 110.78, up 1.03, to 10,816.92.

Broader stock indicators also rose, but not as much. The Standard & Poor’s 500 index rose 6.35, or 0.52 percent, to 1,230.04, and the Nasdaq composite index rose 13.53, or 0.65 percent, to 2,086.

Bonds fell, with the yield on the 10-year Treasury note rising to 5.06 percent from 4.96 percent late Tuesday. The U.S. dollar was down against most major currencies. Gold prices also fell, closing at $562.30 a troy ounce, far below their recent highs above $700.

. A barrel of light crude was quoted at $69.14, up 58 cents, in trading on the New York Mercantile Exchange.

International markets have been shuddering as U.S. stocks slid.

Japanese markets rebounded Wednesday after their biggest drop in two years and European stocks closed mixed. But markets remained shaky elsewhere. Russia’s benchmark index dropped 9.4 percent Wednesday after falling 10 percent in Tuesday’s trading. Pakistan’s benchmark index lost 5.86 percent and Thai stocks fell 3.54 percent.

Both U.S. and global stocks have been pummeled by fears that inflation would reduce spending worldwide, and that the resulting rise in interest rates would make capital more expensive for companies seeking to expand. However, by the time the CPI numbers came out Wednesday, analysts said bad inflation news had already been factored into stock prices.

“The rumor was that core inflation numbers would be bad and they were,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “The markets already fully reflected that fact.”

The Labor Department’s Consumer Price Index posted a 0.4 percent increase in May. Core inflation, which excludes energy and food prices, rose by a larger-than-expected 0.3 percent.

In company news, Boeing Co. rose $5.03, or 6.5 percent, to $82.01 after Singapore Airlines said it will buy 20 Boeing 787-9 aircraft for $4.52 billion, hours after it expressed unhappiness about delays in Airbus’ delivery of its A380 superjumbo.

Bayer AG rose $3.07 to $41.28 following an agreement that could clear the way for Bayer to take over Schering AG. Schering rose $2.54 to $111.55.

Tribune Co. rose 89 cents to $31.94 after the media company’s second-largest shareholder called for a breakup of company, saying its strategy of combining broadcasting and newspaper properties in large cities has failed. The Chandler family, which owns 12 percent of Tribune’s shares, also said in a regulatory filing that they would not tender their shares as part of a major buyback the company is undertaking.

Shares of stun-gun maker Taser International Inc. rose 55 cents to $8.02 after Chairman Phillips W. Smith bought $762,000 worth of the company’s stock. The company’s stock has fallen nearly 18 percent since Monday, when Taser announced it filed a patent infringement lawsuit against Bestex Co., a maker of air guns that fire darts to shock humans.

Advancing issues barely edged out decliners on the New York Stock Exchange, where consolidated volume came to 3.86 billion shares, up from 3.37 billion Tuesday.

The Russell 2000 index of smaller companies was up 4.37, or 0.65 percent, to 677.09.

Overseas, Japan’s Nikkei stock average rose 0.64 percent. Britain’s FTSE 100 fell 0.23 percent, Germany’s DAX index rose 0.26 percent, and France’s CAC-40 dropped 0.05 percent.