Wall Street surges despite oil price spike

Wall Street surged today as investors looked past a sharp rebound in oil prices and focused on comforting news about the US economy – better-than-expected retail sales and a drop in the number of laid-off workers seeking unemployment benefits.

The Dow Jones industrials rose almost 214 points, posting its biggest daily point gain since April 18.

The market got an additional boost from word that Verizon Wireless will acquire Alltel Communications LLC for 5.9 billion in cash and the assumption of 22.2 billion in debt.

Not all of today’s news was positive, however. Even though the Labour Department said applications for unemployment benefits declined last week by 18,000 to 357,000, its four-week average rose to a four-month high.

Other worrisome developments included a more than 5 spike in crude oil prices to almost 128 a barrel, a steep tumble by the dollar against the euro, rising bond yields, a new record high in corn prices, and a Mortgage Bankers Association report showing that nearly 1% of mortgages fell into foreclosure between January and March.

Stock investors appeared to be ignoring today’s negative signals. Instead they were betting on an economic recovery later in the year.

Alfred Goldman, chief market strategist at Wachovia Securities, contends the market is entering a stronger period because of investors’ ability to not overreact to some bad news such as rising oil prices and a weak dollar and to focus instead on the retail sales and jobless claims numbers.

“What investors are doing is looking beyond the valley to the peaks ahead,” he said. “The big picture is that we’re in a market that’s transitioning from a bear to a bull.”

The Dow rose 213.97, or 1.73%, to 12,604.45.

Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 26.85, or 1.95%, to 1,404.05, and the Nasdaq composite index rose 46.80, or 1.87%, to 2,549.94.

The Russell 2000 index of smaller companies rose 19.55, or 2.63%, to 763.26.

Stocks finished mixed yesterday following sizeable declines in the first two sessions of the week.

Among retailers reporting solid May results, Wal-Mart Stores said sales at stores open at least a year rose as consumers sought bargains. Wal-Mart shares rose 2.12, or 3.7%, to 59.80.

Subodh Kumar, global investment strategist at Subodh Kumar in Toronto, said the jobs figures and the Verizon Wireless deal offer some investors reassurance about the health of the economy.

“It looks like the US is not in recession but, I would say, tepid growth,” Kumar said.

Bond prices fell today. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.03% from 3.98% late yesterday. Gold prices fell.

The stock market appeared to be shrugging off a sharp rebound in oil prices. Light, sweet crude oil rose 5.49 at 127.79 a barrel on the New York Mercantile Exchange.

The weekly jobs report came as investors continue to grapple with concerns about tightness in the credit market, the effect of still-high energy prices and a slumping housing market.

With the weekly jobs numbers in hand, Wall Street was looking ahead to the Labour Department’s monthly employment reading, due tomorrow morning. That report often draws widespread attention because a spike in unemployment could upend consumer spending, which accounts for more than two-thirds of US economic activity.

“I think tomorrow will be somewhat of a similar kind of a day in the sense that if the news is at or above expectations I think investors may be willing to buy in,” said Kumar, referring to tomorrow’s employment report.

Wachovia’s Goldman said the market will still likely continue to vacillate, though, as investors look for further signs about the well-being of the economy.

“This is not going to be a one-way street up. I think it’s going to be a more dull, churning market. After anybody has surgery you don’t jump off the operating table and do the jitterbug. They keep you on the operating table,” he said, alluding to a possibly gradual recovery in the market from concerns about bad credit and woes in the housing industry.

In corporate news, Verizon Communications rose 1.98, or 5.4%, to 38.96 after the announcement of Verizon Wireless’ deal. Verizon Wireless is a joint venture between Verizon Communications and Vodafone. Alltel was sold to TPG Capital and a unit of Goldman Sachs Group in a 27.5 billion leveraged buyout about seven months ago.

If completed, the deal would push Verizon Wireless past AT&T to become the biggest operator in the US.

Continental Airlines rose 68 cents, or 4.7%, to 15.18 after announcing plans to cut 3,000 jobs and reduce its capacity in the fourth quarter by 11% as it grapples with surging jet fuel prices. Company officials said the industry’s business model “doesn’t work with the current price of fuel.”

Wal-Mart said its May same-store sales rose 4.4%. Excluding the effect of fuel sales, same-store sales rose 3.9%. The stock, which like Verizon Communications is one of the 30 that comprise the Dow industrials, rose 2.12, or 3.7%, to 59.80.

The stock market initially pulled back a bit after the ratings agency Standard & Poor’s downgraded bond insurers Ambac Assurance and MBIA Insurance. But the move did not come as a shock to most investors – particularly given that another agency, Moody’s Investor Service, yesterday put both insurers on negative credit watch.

Ambac rose 13 cents, or 5.2%, to 2.62, and MBIA rose 42 cents, or 7.5%, to 6.05.

Advancing issues outnumbered decliners by nearly 3 to 1 on the New York Stock Exchange, where volume came to 1.15 billion shares.

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