US stocks climb despite expected inflation rise

Stocks bounded higher today as investors shrugged off a fresh indicator of rising inflation, but climbing oil prices kept a lid on gains.

Strong data on industrial production and a jump in housing construction overshadowed a worrisome reading of the Consumer Price Index, the government’s most closely watched inflation barometer.

The latest inflation data followed a sharp 1.7% increase in the Producer Price Index, which sent stocks falling yesterday.

“This is a terrific rebound, and startling in the face of the twin jumps in inflation that we’ve had over the last couple of days. The market is definitely saying that inflation is not the problem right now, it’s still a question of growth,” said Ken Tower, chief market strategist for Schwab’s CyberTrader.

The Dow Jones industrial average was up 61.92, or 0.59%, at 10,549.57, after surging more than 100 points earlier in the day.

The broader gauges were also higher, though they too lost some of their earlier momentum. The Standard & Poor’s 500 index rose 6.51, or 0.55%, to 1,181.94. The Nasdaq composite index was up 21.06, or 101%, at 2,099.68.

Rising costs for energy and food sent the Consumer Price Index up 0.6% in October, the biggest advance in five months.

Analysts said the Labour Department’s latest snapshot of the inflation climate makes it more likely that the Federal Reserve will raise interest rates when policy makers next meet, on December 14.

Excluding volatile energy and food prices, “core” inflation increased by a more modest 0.2% in October.

Both readings were higher than economists had forecast.

Separately, industrial production shot up 0.7%, a reading that suggests the sector is gaining momentum. Home builders showed strength after the Commerce Department reported a 6.4% jump in housing construction last month.

Oil futures were trading higher after the US government reported a rise in oil supplies for the eighth straight week; crude inventories were up 800,000 barrels, but the supply of distillate fuels, which include heating oil and diesel, fell by one million barrels.

Traders had been hoping for a build in distillate inventories.

Light, sweet crude for December delivery settled 73 cents higher at 46.84 per barrel on the New York Mercantile Exchange. Heating oil futures surged 8.45 cents, or 6%, to 1.41 per gallon.

Adding to crude’s volatility: In Russia, embattled oil giant OAO Yukos said Moscow’s all-out assault to collect back taxes could force it to halt its daily output of over two million barrels; in Nigeria, the world’s No. 7 exporter, rebels vying for the oil-rich Niger Delta stopped handing over their weapons to a government-appointed disarmament commission claiming the process was not transparent; and in Iraq, saboteurs attacked a pipeline and well near northern Kirkuk.

Advancing shares outnumbered decliners by more than 2 to 1 on the New York Stock Exchange.

The Russell 2000 index, which tracks smaller company stocks, was up 5.13, or 0.83%, at 623.02.