Optimism about rates energizes the market

NEW YORK » A combination of moderate inflation and falling oil prices energized Wall Street yesterday, sending stocks higher as investors grew optimistic about an end to the Federal Reserve's interest rate hikes.

The core rate of inflation, which excludes energy and food, rose by a tame 0.2 percent in January, in line with economists' forecasts. Higher prices for gasoline and electricity sent the broader Consumer Price Index up 0.7 percent last month, a greater increase than economists expected and the largest rise in prices in four months.

The Fed, under new Chairman Ben Bernanke, is keeping a close watch on inflation. If higher energy costs or any other factors cause inflation to spike, the Fed will continue its streak of short-term rate hikes in an attempt to keep price increases under control.

"There were no ticking time bombs in the inflation report," said Stuart Schweitzer, global markets strategist at JP Morgan Asset and Wealth Management. "Although there was a substantial rise in energy prices, otherwise inflation remains very contained."

Investors were heartened by a drop in crude oil futures, which sagged despite recent attacks on oil pipelines and workers in Nigeria. A barrel of light crude settled at $61.01, down $1.73, in trading on the New York Mercantile Exchange.

The Dow Jones industrial average rose 68.11, or 0.62 percent, to 11,137.17. Sharp gains in a handful of its 30 component stocks powered the Dow ahead of broader indexes.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 9.63, or 0.75 percent, to 1,292.67, and the Nasdaq composite index rose 20.21, or 0.89 percent, to 2,283.17.

Bonds rose, with the yield on the 10-year Treasury note falling to 4.53 percent from 4.57 percent late Tuesday. The U.S. dollar was higher against most other major currencies. Gold prices were little changed.

The market has been swinging in recent weeks with each new scrap of data that might influence the Fed as it considers future interest rate hikes. Many analysts expect the choppy trading to continue.

"Overall, the market is, to some degree, held hostage by what the Fed is going to say," said John O'Donoghue, co-head of equities at Cowen & Co.

The Dow climbed as a handful of its components rose sharply, including Altria Group Inc., which rose $1.18 to $73.38 after the company backed its 2006 profit outlook Tuesday. Boeing gained $1.34 to $74.39 after it landed the first big deal at Asia's biggest air show and Pfizer rose 55 cents to $26.19 after the Food and Drug Administration approved its treatment for a common blood infection.