Dow regains 179
on economic news

Three reports suggest inflation is under control

NEW YORK -- The Dow Jones industrial average flirted with its biggest-point gain ever today as investors heaved a sigh of relief after a tame reading on employment costs, a key force behind inflation.

The Dow closed at 6,962.03, soaring 179.01 points, down slightly from a nearly 188-point gain that would have been the biggest ever for the blue-chip barometer.

But in stark contrast with the market's selective attempts to bounce back from its recent slide, broader stock measures kept pace with the blue-chip sector's gains.

The rally put the Dow within striking distance of 7,000 for the first time since the start of a nearly 700-point retreat from its March 11 high of 7,085.16. The Dow has now recovered more than 500 points of that one-month slide, which was spurred by inflation and interest rate worries.

Stocks were catapulted by the bond market, where interest rates plunged below a psychologically important barrier after the Labor Department reported that Americans' wages and benefits rose a modest 0.6 percent in the first quarter.

The quarterly compensation gain was in the low end of the range for the department's Employment Cost Index over the past two years and only two-thirds of the 0.9 percent predicted by economists.

Separately, the Commerce Department said orders to factories for big-ticket durable goods unexpectedly plunged 3 percent in March, the biggest decline in seven months. February orders were weaker than initially reported.

Also, consumer confidence dropped for the second straight month in April, falling more than anticipated, said the New York-based Conference Board, a business group.

Excluding the volatile transportation category, durable goods orders posted the sharpest drop in nearly six years. And the backlog of unfilled orders recorded the first decrease since August. That suggests any threat of inflationary bottlenecks developing in the manufacturing pipeline is receding.

"An inflation problem isn't going to materialize this summer," said economist Mark Zandi of Regional Financial Associates in West Chester, Pa. "If it is going to materialize, it's going to be later in the year, which is a pleasant development."

But today's compensation report wasn't wholly benign from the standpoint of those worried the Federal Reserve will have to ratchet up interest rates to quell inflation. Wages and salaries -- nearly three-fourths of total compensation -- rose a seasonally adjusted 0.9 percent, the most in a year. Still, the index's rise for total compensation was tempered by a scant 0.1 percent rise in benefits.

Before the Fed nudged short-term interest rates a quarter percentage point higher on March 25, Chairman Alan Greenspan told Congress the restraint in wage gains could soon start eroding as sustained low unemployment bolstered workers' confidence and bargaining power.

Zandi said today's reports probably won't deter Fed policy-makers from raising rates another quarter point when they meet May 20. But, if the data is followed by similar news in the months to come, it may persuade policy-makers to hold off in subsequent meetings, he said.

On Wall Street, today's reports sent stock and bond prices soaring, pushing down interest rates in credit markets. Yields on 30-year Treasury bonds -- which move in the opposite direction of prices and are a barometer of business and consumer borrowing costs -- plunged from 7.11 percent late yesterday to as low as 6.99 percent, the lowest in a month.

It was the third Tuesday in a row that the Dow broke the record for its second-biggest point gain after a 186.84-point gain that came two days after the Black Monday crash of 1987.

Advancers beat decliners today by nearly a 4-to-1 margin on the New York Stock Exchange, with 2,117 up, 555 down and 664 unchanged. NYSE volume totaled 547.67 million shares vs. 402.42 million yesterday.

The Standard & Poor's 500-stock list rose 21.09 to 794.05, and the NYSE's composite index rose 9.94 to 413.63. The Nasdaq index rose 25.61 to 1,242.64, and the American Stock Exchange composite rose 6.83 to 548.03.