Good news on Ernesto cheers Wall Street

Wall Street rebounded today as energy prices fell on signs that Tropical Storm Ernesto will not hit the Gulf of Mexico.

Investors also grew optimistic about a series of major economic reports this week.

Retail and transportation stocks rose as investors believed lower oil prices would help consumer spending. The drop in energy prices also massaged concerns that this week’s data on consumer confidence, job growth, and manufacturing might show the economy is slowing faster than expected.

The market’s advance came amid light summer volume, which is expected to remain thin until after Labor Day. Investors did get a handful of company announcements today, including Google and auction website eBay forming an advertising alliance.

Meanwhile, Kinder Morgan’s board agreed to take the natural gas pipeline operator private, and Western Refining said it was acquiring Giant Industries.

“The message of this week is ’if a tree falls in the forest, and there’s nobody there, will it make noise?’,” said Larry Peruzzi, a trader with Mellon Financial’s The Boston Co. Asset management.

The Standard & Poor’s 500 added 6.69, or 0.52%, to 1,301.78 – near a three-month high.

Powering the index were components Altria Group and PepsiCo, which touched on historic highs, while Coca-Cola hit a new 52-week high.

Other major stock indicators also advanced. The Dow jumped 67.96, or 0.60%, to 11,352.01, recovering somewhat from last week’s loss of 0.86%. The Nasdaq composite index, also near a three-month high, picked up 20.41, or 0.95%, to 2,160.70.

Bonds were mostly flat, with the yield on the benchmark 10-year Treasury note at 4.80% from Friday’s five-month low of 4.79%. The dollar was mixed against other major currencies, while gold prices fell.

Energy prices retreated as it appeared Ernesto would probably swipe Florida instead of key oil and gas platforms in the Gulf of Mexico.

A barrel of light, sweet crude tumbled 1.90 dollars to 70.61 dollars on the New York Mercantile Exchange. Meanwhile, gasoline futures fell by 11 cents to 1.78 dollars a gallon and natural gas declined by 68 cents to 6.47 dollars per 1,000 cubic feet.

The declines were welcomed by Wall Street afterlast week’s economic data showed a sharp drop in new and existing home sales. The data prompted concerns about the economy, and threw into question the Federal Reserve’s hope for a soft landing as a result of its string of 17 interest rate hikes.

Investors will be looking for clues as to the Fed’s next move from this week’s economic data, starting with the Conference Board’s consumer confidence report tomorrow.

Consumer companies moved broadly higher, with Coca-Cola up 19 cents to 44.71 dollars, rival PepsiCo adding 82 cents to 65 dollars, and Altria rising 5 cents to 84.05 dollars.

Retailers, which stand to benefit if consumers are spending less at the pumps, also rose. Wal-Mart led those gains afte reporting over the weekend that August same-store sales rose 2.7%. The increase is in line with the retailer’s forecast of same-store sales growth of 1% to 3%, sending shares higher by 55 cents to 44.43 dollars.

Buyers moved back into transport stocks, which had fallen for seven straight weeks. Continental Airlines rose 1 dollar, or 4.4%, to 23.96 dollars. FedEx Corp. shares picked up 1.75 dollars, or 1.8%, to 100.90 dollars.

Oil companies, which benefit from higher prices if crude supplies ae disrupted by a hurricane, dipped as Ernesto was expect to veer away from the gulf.

Exxon Mobil, the world’s largest oil company, dropped 33 cents to 70.10 dollars, while British Petroleum PLC shed 16 cents to 68.15 dollars. Royal Dutch Shell fell 7 cents to 73.12 dollars.

Kinder Morgan said a group led by its former founders will take the company private in a cash deal worth 15 billion dollars, plus the assumption of 7 billion dollars in debt. The stock rose 2.57 dollars, or 2.5%, to 104.27 dollars.

Also, Western Refining agreed to buy Giant Industries for 1.23 billion dollars in cash, creating the fourth-largest publicly traded independent oil refiner in the US. Western Refining dropped 85 cents, or 3.3%, to 25.14 dollars. Giant Industries surged 10.43 dollars, or 15%, to 82.22 dollars.

Tech stocks advanced after Google and eBay announced they would partner up to help buyers quickly do business with online merchants. Ebay, one of the Nasdaq’s most heavily traded stocks, gained 49 cents to 25.79 dollars. Google gained 7.69 dollars, or 2.1%, to 380.95 dollars.

Advancing issues outnumbered decliners by more than two to one on the New York Stock Exchange, where volume came to 1.08 billion, compared to 812.3 million traded at the same point on Friday.

The Russell 2000 index of smaller companies added 7.41, or 1.06%, to 706.65.