Nasdaq and S&P close at five-year highs

The Nasdaq composite and Standard & Poor’s 500 indexes closed at five-year highs today after a positive report on the US economy’s service sector pushed stocks modestly higher.

A jump in oil prices, however, minimised Wall Street’s gains.

The Institute for Supply Management’s service index, an important barometer of that sector’s activity, came in at 60.5 for the month, up from 60.1 in February and better than the 59 reading economists expected.

The modest gains were enough to encourage Wall Street about that sector’s growth, but did not appear to reignite the market’s interest rate worries.

Yet trading remained tentative as the Energy Department’s weekly inventory report showed lower stockpiles of petrol and distillate fuels, which drove up crude oil futures. A barrel of light crude settled at US$67.07 (€54.57), up 84 cents, on the New York Mercantile Exchange – a 20% year-over-year rise.

“The tick up in oil prices hurts, but history has shown that interest rates have a much bigger impact on the stock market than oil,” said Jack Ablin, chief investment officer at Harris Private Bank. “And looking at the ISM services number, you’re seeing the kind of gradual, lazy improvement in the economy that’s not going to really get rates going.”

The Nasdaq gained 14.39, or 0.61%, to close at 2,359.75, its best close since February 16, 2001, when it ended on 2,425.35.

The S&P added 5.63, or 0.43%, to close at 1,311.56, its best showing since May 21, 2001 when it finished on 1,312.83.

The Dow Jones industrial average rose 35.70, or 0.32%, to 11,239.55.

Bonds climbed higher, with the yield on the 10-year Treasury note falling to 4.85% from 4.87% on Tuesday. The dollar was mixed against other major currencies, while gold prices rose, but remained below US$600 (€488.14) per ounce.

The market’s activity – which had the major indexes seesawing through the early part of the session – could be attributed to investor unease ahead of Friday’s job creation report from the Labour Department. The report is a key indicator of the overall economy’s health, and Wall Street remained concerned that a very strong economy would prompt more interest rate hikes from the Federal Reserve.

With that uncertainty looming and stocks at or near five-year highs, investors were unlikely to push stocks substantially higher without at least some kind of retrenchment over the next few weeks, analysts said.

“Nobody likes to buy into a market that’s making new highs. People like to be in a market that’s making new highs,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati. “We’re pretty much at a top right now, and people are going to want to see a good-sized correction at some point before jumping in again.”

In corporate news, strong corn seed sales helped agricultural supplier Monsanto Co. post an 18% jump in quarterly profits. The company’s earnings beat Wall Street forecasts by 8 cents per share, but Monsanto nonetheless dropped 47 cents to 85.41 as its second-quarter forecasts came in lower than expected.

Apple Computer surged 6.04, or 9.9%, to 67.21 as the company unveiled new software that would allow its Macintosh computers running on Intel Corp. chips to use Microsoft’s Windows XP, a move to broaden the Mac’s appeal among PC users. Microsoft rose 10 cents to 27.74 on the news, while Intel gained 18 cents to 19.48.

Shares of broadcaster CBS added 16 cents to 24.97 after NBC Today host Katie Couric announced she would move to CBS to anchor its evening news and contribute to 60 Minutes. NBC parent General Electric slid 28 cents to 34.42.

Advancing issues outnumbered decliners by nearly 5 to 3 on the New York Stock Exchange, where volume totalled 1.62bn shares, compared with 1.52bn on Tuesday.

The Russell 2000 index of smaller companies rose 3.94, or 0.52%, to 766.26, an all-time high for the small-cap indicator.