Oil prices make investors pause

Stocks regained some momentum today as fresh economic data suggested inflation remains well under control, but volatile oil prices gave investors some pause late in the session.

Analysts are closely watching stocks for signs that the market will stabilise in the second half of the year, but choppy trading has made it difficult to build confidence among investors, particularly given recent fluctuations in oil prices.

Some traders questioned the durability of the day’s advance following a series of lowered corporate forecasts and mixed economic data.

“Once again, we’ve pulled oil into the headlines. It seems we always find ourselves with that staring us down anytime we’re starting a rally,” said Bill Groenveld, head trader for vFinance Investments.

“We’ve had a strong move, but it would be healthy for the market to consolidate. It could give us a pedestal to move higher, solidly, in the fourth quarter, as long as economic numbers don’t change and oil stays in line.”

The Dow Jones industrial average finished up 13.13, or 0.1%, at 10,244.49.

The broader gauges also closed in positive range. The Nasdaq composite index added 7.56, or 0.4%, to 1,904.08. The Standard & Poor’s 500 index gained 3.13, or 0.3%, to 1,123.50.

Oil production facilities in the Gulf of Mexico were restaffing after a lashing by Hurricane Ivan that threatened rigs, pushed tankers off course and cut daily production by half.

Crude prices were down most of the day, but inched higher late in the session as traders covered their shorts. Light crude for October delivery was up 30 cents at 43.88 dollars per barrel on the New York Mercantile Exchange.

The Labour Department reported a 0.1% increase in the Consumer Price Index, the government’s most closely watched inflation gauge. It was a better reading than the 0.2% rise forecast by economists, and indicates inflation poses no immediate risk.

Analysts said the economic lull in late spring and early summer made it harder for some companies to raise prices.

Following a weaker session on Tuesday, which analysts said was overdue after four weeks of solid gains, the inflation data served as a buying incentive for investors, and more than offset negative earnings warnings from several companies, including Nortel Networks Corp.

Volume was light due to Rosh Hashanah - the Jewish New Year – and ahead of the usually volatile “triple witching” on Friday, when options and futures contracts expire.

Much attention has been focused on economic data ahead of next week’s meeting of the Federal Reserve, when policy-makers are expected to raise the federal funds rate by a quarter point to 1.75%.

As long as inflation remains in check, analysts say the Fed is unlikely to adopt a more aggressive policy on rates. Investors also remained preoccupied with what lies ahead for stocks in the second half, though analysts say they should keep their expectations in check.

“Now through the end of the year there might be some anxiety, but this is the time to really get back to business and make your money in the market,” said David Hegarty, head trader at Commerzbank Securities.

“We have four more months here, so this is where the action happens. I’m confident in the market going through the end of the year. I don’t think we’ll put in spectacular gains, but I think the market could go another 2% higher.”

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange. Volume came to 1.11 billion shares, compared to 1.25 billion traded Wednesday.

The Russell 2000 index, which tracks smaller company stocks, was up 6.02, or 1.1 percent, at 574.54.