US stocks rise on inflation news

US stocks resumed their advance on Wall Street today after New York’s Federal Reserve president said in a speech that US inflation was “quite moderate”.

All three major indexes reached new highs for the second time this week.

Since fighting inflation is the US Federal Reserve’s top concern, investors interpreted the remarks by New York Fed President Timothy Geithner as another sign that the Fed might soon halt its interest rate hikes.

“Anything that makes investors feel comfortable with the inflation level and the way short-term interest rates are going is going to help the market,” said Stuart Freeman, chief equity strategist for AG Edwards & Sons.

Earlier in the session, stocks were under pressure following a profit warning from DuPont and BP’s announcement that its fourth-quarter oil production slipped.

DuPont is the second of the 30 Dow industrials to disappoint Wall Street after Alcoa kicked off fourth-quarter earnings season yesterday with lower-than-expected profits.

The Dow Jones industrial average rose 31.86, or 0.29%, to 11,043.44.

Broader stock indicators were higher. The Standard & Poor’s 500 index rose 4.49, or 0.35%, to 1,294.18, and the Nasdaq composite index rose 11.04, or 0.48%, to close at 2,331.36.

Bonds fell after a weak auction of five-year Treasury bills. The yield on the 10-year Treasury rose to 4.46% from 4.43% on Wednesday. The US dollar fell against other major currencies. Gold prices were higher.

Crude oil futures rose. A barrel of light crude was quoted at US$63.94 (€52.72), up 57 cents, in trading on the New York Mercantile Exchange.

Wall Street saw strong advances in the first five trading days of the year, but after the Dow Jones industrial average crossed 11,000 on Monday for the first time in more than four years, stocks paused, closing nearly flat yesterday.

Stocks remained flat today until Geithner’s speech, in which he said overall inflation pressures have risen, while “inflation excluding food and energy, however, has been quite moderate, in part due to very modest growth in unit labour costs”.

The market reacted because the speech contained “no overtly hawkish sign and some positive words on current inflation and productivity trends”, said Lynn Reaser, chief economist, the investment strategies group, at Bank of America.

Freeman said: “A comment like this suggests that perhaps future increases won’t be too aggressive.”

In company news, the chemical maker DuPont fell 1.41 to 41.14 after it said its fourth-quarter earnings will be about 10 cents per share for the period, far beneath is October guidance of 20 cents to 25 cents per share.

DuPont said results were damaged by suspended operations and logistical problems from hurricanes Katrina and Rita in the Gulf Coast, along with separate production interruptions at plants in Brazil, the Netherlands and the US.

BP, one of the world’s largest oil companies, fell 28 cents to 67.90 after it said its oil production for the fourth quarter of 2005 would be slightly lower than the same period last year due to the hurricanes. BP also disclosed more than US$1.3bn (€1.07bn)of charges on its refining and distribution businesses.

Guidant rose 1.05 to 70.44 as the company’s board wrestled over whether to accept Boston Scientific Corporation’s US$25bn (€20.62bn) bid for the company. Competing suitor Johnson & Johnson made an 11th-hour effort to negotiate a new deal, according to news reports. Boston Scientific fell 1.07 to 25.41; J&J fell 60 cents to 62.50.

Advancing issues outnumbered decliners by roughly 9 to 7 on the New York Stock Exchange, where volume totalled 1.73bn shares, up from 1.67bn on Tuesday.

The Russell 2000 index of smaller companies rose 0.20, or 0.03%, to 711.19. The index, which closed above 700 for the first time on Monday, has reached record closes for two days in a row.