Stocks rise amid inflation fears, mergers

/ Source: The Associated Press

Wall Street managed a moderate gain Monday in a volatile session that saw investors alternating between worries about interest rates and delight in a new wave of merger deals.

News of a successor to Michael Eisner at The Walt Disney Co. and a new chief executive officer at American International Group Inc. lifted stocks, as did planned acquisitions by Altria Group Inc. and IBM Corp.

However, the gains were muted by the inflation worries that sent stocks falling last week, as Federal Reserve board member Janet Yellen warned that rising interest rates could hurt borrowers. A rise in oil prices also unnerved investors, with a barrel of light crude settling at $54.95, up 52 cents, on the New York Mercantile Exchange.

“Investors remain very, very concerned, and they should be, that we’re headed toward higher inflation and higher interest rates,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “No matter how you say it, higher inflation and interest rates is the biggest risk that faces the stock market in 2005, and we are now seeing why.”

The Dow Jones industrial average was up 30.15 points, or 0.3 percent, at the close of Monday’s session, while the broader Standard & Poor’s 500-stock index was up 6.75 points, or 0.6 percent. The Nasdaq composite index, full of technology stocks, finished the day with a gain of 9.44 points, or 0.5 percent.

The bond market moved modestly higher, with the yield on the 10-year Treasury note falling to 4.51 percent from Friday’s 4.55 percent. Gold prices fell as the U.S. dollar gained ground against most major currencies.

Investors were pleased after Disney announced over the weekend that company president Robert Iger would take over for Eisner Oct. 1, a year earlier than planned. Disney shares rose 43 cents to $28.02.

AIG lost 86 cents to $63.85 after The Wall Street Journal reported Maurice “Hank” Greenberg could be stepping down as CEO as early as this week. The paper reported that Martin Sullivan, vice chairman of the company, could take over for Greenberg, who has been criticized for the insurance company’s mounting regulatory troubles.

Office Depot Inc. also announced a management change, naming AutoZone Inc. CEO Steve Odland as its new chairman and chief executive. Office Depot rose $1.56 to $20.75 on the news.

In acquisition news, Altria Group Inc. climbed 3 cents to $69.17 after it announced a $5.2 billion bid for Indonesian tobacco company PT HM Sampoerna in an attempt to bolster its international business.

IBM Corp. said it will pay $1.1 billion for Ascential Software Corp., a maker of enterprise data-integration software, as Big Blue furthers its strategy to become a software and services company. IBM gained 39 cents to $91.90, while Ascential surged $2.59, or 16.5 percent, to $18.29.

Even with commodity prices higher and inflation concerns deepening, the spate of acquisitions is a harbinger of improvement in the overall economy, said Jack Ablin, chief investment officer at Harris Private Bank.

“The confluence of optimism and cash on the balance sheets has resulted in corporate acquisitions,” Ablin said. “This really underscores the optimism that corporate executives have in the economy at the moment, and that’s a good sign for investors.”

Qwest Communications International Inc. rose 6 cents to $3.91 after news reports said the telecommunications company would sweeten its currently $8 billion offer for MCI Corp. MCI had already agreed to a $6.75 billion deal to be acquired by Dow component Verizon Communications Inc., but said it will continue discussions with Qwest. MCI was up 9 cents at $24.18, while Verizon edged a penny higher to $36.08.

The retail sector saw gains as a Bear Stearns analyst speculated that J.C. Penney Co. Inc. could purchase rival Gottschalks Inc. to increase its market share. The report, cited in Barron’s, also said there would be more consolidation among retailers. Gottschalks added $1.20, or 13.5 percent, to $10.08, while J.C. Penney climbed 87 cents to $48.88.

Overseas, Japan’s Nikkei stock average fell 0.62 percent. In Europe, Britain’s FTSE 100 closed down 0.14 percent and France’s CAC-40 slid 0.02 percent for the session, while Germany’s DAX index rose 0.16 percent.