Kmart-Sears deal
boosts market

NEW YORK » Stocks bounded higher yesterday as investors shrugged off a fresh indicator of rising inflation and welcomed an $11 billion deal that combines retailers Kmart Holding Corp. and Sears, Roebuck & Co.

Climbing oil prices kept a lid on gains, however, in light of a potential heating oil supply crunch.

The merger, the largest such transaction involving U.S. retailers, strong data on industrial production and a jump in housing construction overshadowed a worrisome reading of the Consumer Price Index, the government's most closely watched inflation barometer. The latest inflation data followed a sharp 1.7 percent increase in the Producer Price Index, which sent stocks falling Tuesday.

"This is a terrific rebound, and startling in the face of the twin jumps in inflation that we've had over the last couple of days. The market is definitely saying that inflation is not the problem right now, it's still a question of growth," said Ken Tower, chief market strategist for Schwab's CyberTrader. "Mergers are bullish in general, because they show business confidence. ... I think the merger just backs up the economic stuff. It's part of the same growth-in-the-economy theme."

The Dow Jones industrial average finished up 61.92, or 0.59 percent, at 10,549.57, after surging more than 100 points earlier in the day.

The broader gauges were also higher, though they, too, lost some of their earlier momentum. The Standard & Poor's 500 index rose 6.51, or 0.55 percent, to 1,181.94. The Nasdaq composite index was up 21.06, or 1.01 percent, at 2,099.68 -- it's best showing since Jan. 27.

Rising costs for energy and food sent the Consumer Price Index up 0.6 percent in October, the biggest advance in five months. Analysts said the U.S. Labor Department's latest snapshot of the inflation climate makes it more likely that the Federal Reserve will raise interest rates when policy makers next meet, on Dec. 14.

Excluding volatile energy and food prices, "core" inflation increased by a more modest 0.2 percent in October. Both readings were higher than economists had forecast.

"It's quite obvious that the merger itself is good news, and of course the fact that we had industrial production taking off has helped strengthen the market," said Peter Cardillo, chief strategist with S.W. Bach & Co. "On the inflation front, that's not such good news, but the effects of $50-plus oil prices are beginning to show up in the numbers, and going forward, that could make the Fed more aggressive" in raising interest rates.