US stocks higher despite inflation data

Stocks in the United States rebounded today with the Dow Jones industrial average climbing more than 110 points.

The jump pulled Wall Street out of a two-week decline that had wiped out the year’s gains in every major index.

Stocks gained momentum in late afternoon trading after a largely lacklustre session marked by mixed reactions to the Commerce Department’s Consumer Price index inflation data.

Consumer-level inflation grew in May at an annual rate of 2.4%, making another Federal Reserve rate rise a near certainty and putting an end to traders’ fretting about the possibility.

Federal Reserve chairman Ben Bernanke and a raft of Fed governors have said anything above a 1 to 2% rate of inflation is outside their “comfort zone”.

Stocks have fallen for six of the last seven trading days on inflation fears, with the Dow having lost more than 541 points over the previous seven sessions.

Today’s gains put the Dow back into positive territory for the year, but the Standard & Poor’s 500 and the Nasdaq composite index remain lower.

The Wall Street adage, “sell on the rumour, buy on the fact,” held for most of the session. While broad indexes turned negative for part of the afternoon, they saw nothing like the dramatic sell-offs of previous sessions.

“Today is a reversal day,” said John C Forelli, portfolio manager for Independence Investment LLC in Boston

The Dow Jones industrial average rose 110.78, up 1.03, to 10,816.92.

Broader stock indicators also rose, but not as much. The Standard & Poor’s 500 index rose 6.35, or 0.52%, to 1,230.04, and the Nasdaq composite index rose 13.53, or 0.65%, to 2,086.

Bonds fell, with the yield on the 10-year Treasury note rising to 5.06% from 4.96% late Tuesday. The US was down against most major currencies. Gold prices also fell, closing at US$562.30 (€446.27) a troy ounce, far below their recent highs above US$700 (€555.56).

Crude oil futures rose. A barrel of light crude was quoted at US$69.14 (€54.87), up 58 cents, in trading on the New York Mercantile Exchange.

International markets have been shuddering as US stocks slid.

Japanese markets rebounded today after their biggest drop in two years and European stocks closed mixed. But markets remained shaky elsewhere. Russia’s benchmark index dropped 9.4% Wednesday after falling 10% in Tuesday’s trading. Pakistan’s benchmark index lost 5.86% and Thai stocks fell 3.54%.

Both US and global stocks have been pummelled by fears that inflation would reduce spending worldwide, and that the resulting rise in interest rates would make capital more expensive for companies seeking to expand. However, by the time the CPI numbers came out today, analysts said bad inflation news had already been factored into stock prices.

“The rumour was that core inflation numbers would be bad and they were,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. “The markets already fully reflected that fact.”

The Labour Department’s Consumer Price Index posted a 0.4% increase in May. Core inflation, which excludes energy and food prices, rose by a larger-than-expected 0.3%.

In company news, Boeing Co. rose 5.03, or 6.5%, to 82.01 after Singapore Airlines said it will buy 20 Boeing 787-9 aircraft for US$4.52bn (€3.59bn), hours after it expressed unhappiness about delays in Airbus’ delivery of its A380 superjumbo.

Bayer AG rose 3.07 to 41.28 following an agreement that could clear the way for Bayer to take over Schering AG. Schering rose 2.54 to 111.55.

Tribune Co. rose 89 cents to 31.94 after the media company’s second-largest shareholder called for a break-up of company, saying its strategy of combining broadcasting and newspaper properties in large cities has failed. The Chandler family, which owns 12% of Tribune’s shares, also said in a regulatory filing that they would not tender their shares as part of a major buyback the company is undertaking.

Shares of stun-gun maker Taser International Inc. rose 55 cents to 8.02 after Chairman Phillips W. Smith bought US$762,000 (€604,578) worth of the company’s stock. The company’s stock has fallen nearly 18% since Monday, when Taser announced it filed a patent infringement lawsuit against Bestex Co, a maker of air guns that fire darts to shock humans.

Advancing issues barely edged out decliners on the New York Stock Exchange, where volume came to 1.97bn, down from 2.31bn Tuesday.

The Russell 2000 index of smaller companies was up 4.37, or 0.65%, to 677.09.