Earnings, oil prices ease inflation jitters

NEW YORK » Upbeat earnings and a broker's upgrade of General Motors Corp. drove stocks higher yesterday as the latest round of data assured investors that the economy remains in good shape.

Positive analyst remarks on GM's restructuring brightened Wall Street's mood, as did solid earnings reports from Amazon.com Inc. and PepsiCo Inc. A third day of lower oil prices also eased the market's inflation jitters.

But while steep gains in home sales and durable goods orders fed worries about the need for higher interest rates to control growth, optimism over the strength of the underlying economy appeared to prevail, said Ken McCarthy, chief economist for vFinance Investments.

"Right now, you could say we're sort of at a sweet spot, where we have healthy growth and reasonably high interest rates," McCarthy said. He added that the economic numbers are showing increased investments by businesses, which tends to spur non-inflationary growth.

The Federal Reserve's beige book -- a survey of its 12 district banks -- underscored the economy's health despite volatility in energy costs. Traders awaited more signals from Fed Chairman Ben Bernanke's congressional testimony today.

At the close of trading, the Dow Jones industrial average jumped 71.24, or 0.63 percent, to 11,354.49. The Dow surged as much as 96 points earlier, but despite the pullback remained at its highest levels since January 2000.

Broader stock indicators also rose. The Standard & Poor's 500 index added 3.67, or 0.28 percent, to 1,305.41, and the Nasdaq composite index gained 3.33, or 0.14 percent, to 2,333.63.

Bonds continued their plunge, with the yield on the 10-year Treasury note rising to 5.11 percent from 5.07 percent late Tuesday. Although many on Wall Street fretted about the 10-year crossing 5 percent for the first time in four years, that level was mostly a psychological barrier and breaking through may actually be benefiting the market, said Scott Merritt, U.S. equity strategist for JPMorgan Asset Management.

"I would actually view that as a positive influence on the equities market," Merritt said. "The Treasury yield curve moving up is doing the job for the Fed" by lifting lending costs, which weighs on consumer spending and could limit economic growth.

Elsewhere, the dollar was little changed against other major currencies.

Crude futures fell for a third straight session after a government report showed further declines in motor fuel demand, while oil and gasoline reserves also shrank. A barrel of light crude dropped 95 cents to settle at $71.93 on the New York Mercantile Exchange.