Stocks vaulted higher for a second straight session Tuesday, as investors welcomed the Treasury Department’s move to put pressure on the Chinese currency system and, perhaps, eventually reduce the U.S. trade deficit.
Investors reacted decisively after the Bush administration declared Tuesday afternoon that China may be using its monetary policies to unfairly affect trade. The Dow jumped 70 points higher in just 23 minutes, finishing with a two-day gain of 191 points, and the Nasdaq composite index climbed past the 2,000 mark for the first time in more than a month.
The market began the day lower after the Labor Department’s Producer Price Index (PPI) showed higher-than-expected increases in wholesale prices. With the counterpart Consumer Price index due before Wednesday’s session, analysts warned that Wall Street’s late rally could be short-lived.
“It’s encouraging to see these kind of gains two days in a row, and I guess I’m cautiously optimistic,” said Neil Massa, an equity trader at John Hancock Funds. “But all this can be erased tomorrow with one number.”
The Dow Jones industrial average finished Tuesday up 79.59 points, or 0.8 percent, while the broader Standard & Poor’s 500-stock index was up 8.11 points, or 0.7 percent. The technology-rich Nasdaq composite index added 9.72 points, or 0.5 percent.
Crude oil futures rose modestly higher, though the Treasury’s stance on China helped Wall Street shrug off the increase. A barrel of light crude settled at $48.97, up 36 cents on the New York Mercantile Exchange.
China’s yuan currency is pegged to the dollar in international trading, which has made China far more competitive than the U.S. due to its lower labor and materials costs. While not outright accusing China of currency manipulation, the Treasury Department said it may do so in the future unless the Chinese government switches to a flexible exchange system.
The Treasury Department’s announcement reversed a modestly down session on Wall Street. Investors’ inflation fears were renewed after the PPI report, which measures wholesale prices, rose 0.6 percent in May, more than the 0.4 percent economists expected. With volatile energy and food costs removed, so-called core PPI rose 0.3 percent, compared with the 0.2 percent expected on Wall Street.
While rising wholesale prices are seen as a possible precursor to inflation, analysts were encouraged that investors had reacted without the usual skittishness that marked trading over the past month.
“Considering the (PPI) numbers today, the market is taking it pretty well,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “It gives us some certainty with the Federal Reserve, since you know the Fed will continue headlong in raising rates.”
The Consumer Price Index is due out before Wednesday’s trading session.
The retail sector — under scrutiny after Wal-Mart Stores Inc. last week warned of weakness in its second-quarter earnings — had a number of positive earnings reports. Home Depot Inc. beat Wall Street’s profit expectations by 5 cents per share, but revenues were lower than expected and sales growth was sluggish. Home Depot, upgraded to “buy” at Deutsche Bank after its earnings were released, climbed $1.49 to $38.86.
Department store chain J.C. Penney & Co. Inc. rose $1.52 to $49.35 after it quadrupled its quarterly earnings from a year ago, citing strong gains in its online shopping division. The company beat analysts’ forecasts by 2 cents per share.
Discount bulk retailer BJ’s Wholesale Club Inc. saw a 16 percent gain in first-quarter profits, beating Wall Street’s forecasts by a penny per share after one-time charges. The company also posted 5.8 percent sales growth in stores open at least a year. BJ’s gained $1.29 to $29.59.
And office supplies retailer Staples Inc. added $1.02 to $21.56 as it posted a 27 percent rise in profits and beat Wall Street’s profit expectations by a penny per share. Sales grew at a moderate pace, but the chain’s North American delivery business showed surprising strength.
In other news, embattled Wall Street firm Morgan Stanley said in a regulatory filing it may have to increase its $360 million legal reserve after a Florida jury on Monday awarded $604.3 million to financier Ronald Perelman in his lawsuit against the firm. The jury could award up to $2.4 billion more in punitive damages. The firm said it would appeal. Morgan Stanley fell 14 cents to $48.66.
Overseas, Japan’s Nikkei stock average tumbled 1.11 percent. In Europe, Britain’s FTSE 100 closed up 0.29 percent, France’s CAC-40 lost 0.12 percent for the session, and Germany’s DAX index fell 0.24 percent.