US stocks end higher as oil price drops

A drop in crude oil futures pushed stocks modestly higher in the United States today, helped by government predictions of lower gasoline prices.

Wall Street was encouraged when oil prices fell below US$65 (€52.359) per barrel as more Gulf Coast production facilities resumed operations and traders saw that Katrina’s damage to petroleum infrastructure was less than originally feared.

A barrel of light crude settled at US$64.37 (€51.85), down US$1.59 (€1.28), on the New York Mercantile Exchange.

Large-cap stocks got a bounce after the Energy Information Administration, a division of the Department of Energy, said that it sees US retail gasoline prices falling to US$2.58 (€2.078) a gallon in the fourth quarter.

The administration also slashed its forecasts for growth in US oil demand this year and next, saying higher costs would deter consumption.

Stocks moved in a narrow band, but trading was choppy as investors took each new piece of news and tried to parse the after-effects of Hurricane Katrina.

“To an extent, we’re all just groping in the dark to make sense of all the news, all the stories, all the data,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

“So much of the data from prior months has been obsoleted by last week. What are the ripple effects? What will the costs be on a cost front, a delivery front and a psychology front?”

The Dow Jones industrial average rose 44.26, or 0.42%, to 10,633.50. On Tuesday, the Dow rose 141.87, its best one-day gain since July 8.

Broader stock indicators were slightly higher. The Standard & Poor’s 500 index rose 2.97, or 0.24%, to 1,236.36, and the Nasdaq composite index rose 5.17, or 0.24%, to 2,172.03.

Bonds continued the previous session’s sell-off, with the yield on the 10-year Treasury note rising to 4.14% from 4.09% late Tuesday. The dollar was mixed against other major currencies. Gold prices fell.

The S&P 500 and Nasdaq composite fell in morning trading after the Department of Labor revised second quarter productivity growth down to a 1.8% annual rate instead of the 2.2% in a preliminary report. The department also reported an increase in labour costs to 2.5% from the 1.3% in its preliminary report.

Higher wages are one of the indicators of inflation the Federal Reserve will weigh as it considers its interest rate policy. Traders had hoped the Fed would end its year-plus march of short-term interest rate hikes after Hurricane Katrina and softer economic data released last week, but increased wages could signal a continuation of the rate hikes.

A speech by Chicago Federal Reserve President Michael Moskow saying the Fed “will take appropriate monetary policies to keep inflation well contained” was also a blow to traders waiting for rate hikes to end.

In company news, Kerr-McGee Corp. shares rose 1.37 to 90.27 after it said its deep water oil facilities in the central and western gulf are producing at pre-hurricane levels.

Inspections and repair of minor damage to the eastern gulf shelf operations still shut continues, officials said. Starting up remaining production will depend on reopening onshore terminals, gas processing facilities and pipelines.

Delta Air Lines Inc. was unchanged at 1.12 after it said it is reducing capacity at its Cincinnati hub by 26% while boosting international service and making other changes in an effort to become more efficient. Delta, the nation’s third-largest carrier, is fighting to avoid bankruptcy.

Declining issues led advancers by roughly 8 to 7 on the New York Stock Exchange where volume was 1.45bn, up from 1.42bn for the same period Tuesday.

The Russell 2000 index of smaller companies rose 2.84, or 0.42%, to 677.32.