Inflation news gives Wall Street a boost

/ Source: The Associated Press

Investors welcomed a lower-than-expected drop in wholesale prices and sent stock indices higher Friday, ending a mildly negative week on Wall Street on a positive note.

Wall Street had been hoping for a decline in the Producer Price Index (PPI), fearing that a rise in wholesale prices would prompt the Federal Reserve to be more aggressive in raising interest rates. The PPI fell 0.7 percent in December, much more than the 0.2 percent decline economists expected. It was the steepest decline in the PPI since April 2003.

The PPI report allowed investors recover at least part of Thursday’s losses and helped the dollar gain ground against most other currencies. Oil prices, however, continued to rise as investors hedged against the return of wintry weather to the Northeast. A barrel of light crude settled at $48.38, up 34 cents, on the New York Mercantile Exchange.

“I think with the response to this you’re seeing on the markets, it’s telling us that high prices really aren’t sustainable,” said John Lynch, chief market analyst at Evergreen Investments. “Even oil’s not going to be inflationary, and with that, I think we can see slow, steady growth in the economy.”

The Dow Jones industrial average was up 52.17 points, or 0.5 percent, at the close of trading, making back nearly half the 112 points it lost in Thursday’s trading session. The broader Standard & Poor’s 500-stock index finished Friday up 7.07 points, or 0.6 percent, while the Nasdaq Composite index, full of technology stocks, climbed 17.35 points, or 0.8 percent.

Despite Friday’s gains, all three indices ended the week lower. The Dow fell 0.4 percent, the S&P 500 index gave up 0.1 percent and the Nasdaq Composite slipped 0.03 percent.

The PPI report took pressure off stock prices, which have slumped for the second week in a row due to high energy prices and concerns over inflation. While Intel Corp. and Apple Computer Inc. both issued stellar earnings reports, the lingering worries on Wall Street prevented the good news from moving most stocks, even within the technology sector.

Investors entered 2005 with a caution that surprised many analysts, but they could regain confidence with good economic data and strong earnings reports in the week ahead.

“The economic numbers today were good, we’re building off that, but really, it’s all about earnings next week, especially guidance for the year,” said Jay Suskind, head trader at Ryan Beck & Co. “The guidance we’ve seen so far has been a wash, so we’ll be looking for evidence that companies believe the economy will keep going.”

In particular, should the Consumer Price Index, due on Wednesday, follow the PPI with a lower-than-expected figure, the concern over prices and inflation would abate considerably, analysts said, and Wall Street could continue to expect the Fed to raise rates in regular, quarter percentage point increments.

In corporate news, insurance broker Marsh & McLennan Cos. Inc. has offered to pay $600 million to settle New York Attorney General Eliot Spitzer’s charges of bid rigging and price fixing, according to media reports. However, Spitzer is reportedly seeking $750 million and a public apology from the company. Marsh & McLennan rose $1.14 to $31.51.

The U.S. Food and Drug Administration rejected a bid from Merck & Co. and Johnson & Johnson to have their cholesterol drug, Mevacor, sold to consumers without a prescription. Merck shares nonetheless added 22 cents to $30.87, while Johnson & Johnson gained 73 cents to $62.70.

Sun Microsystems Inc. fell 36 cents to $4.22 after the company reported a small fourth-quarter profit, but said revenues continued to fall compared with last year. Sun’s sales fell short of Wall Street’s forecasts.

A pair of brokerage reports issued Friday said General Motors Corp.’s 2005 outlook was optimistic, even as the automaker said profits this year could shrink by as much as $2 per share. Both Deutsche Bank and Credit Suisse First Boston said GM’s forecasts for auto sales may be too ambitious. GM lost 19 cents to $37.13.

Boeing Co. rose 28 cents to $50.91 after the aircraft manufacturer announced it would take $617 million in one-time charges in fourth quarter. The charges stem from ending production on Boeing’s 717 aircraft, which never gained traction in the market, and the Air Force 767 tanker program, to which Boeing said it remains committed.

Altria Group Inc. subsidiary Phillip Morris USA announced it would raise prices on certain cigarette brands by 10 cents per pack, matching a similar hike on its Marlboro brand made last month. Altria Group was up $1.05 at $63.35.

Overseas, Japan’s Nikkei stock average rose 0.7 percent Friday. In Europe, Britain’s FTSE 100 closed up 0.4 percent, France’s CAC-40 climbed 0.5 percent for the session, while Germany’s DAX index gained 0.5 percent.