Stocks reverse out of downward spiral
NEW YORK » Stocks rebounded yesterday, with the Dow Jones industrial average climbing more than 110 points. The jump pulled Wall Street out of a two-week decline that had wiped out the year's gains in every major index.
Stocks gained momentum in late afternoon trading after a largely lackluster session marked by mixed reactions to the Labor Department's Consumer Price index inflation data. Consumer-level inflation grew in May at an annual rate of 2.4 percent, making another Federal Reserve rate hike a near certainty and putting an end to traders' fretting about the possibility.
Federal Reserve chairman Ben Bernanke and a raft of Fed governors have said anything above a 1 percent to 2 percent rate of inflation is outside their "comfort zone."
Stocks have fallen for six of the last seven trading days on inflation fears, with the Dow having lost more than 541 points over the previous seven sessions. Yesterday's gains put the Dow back into positive territory for the year, but the Standard & Poor's 500 and the Nasdaq composite index remain lower.
The Wall Street adage, "sell on the rumor, buy on the fact," held for most of the session. While broad indexes turned negative for part of the afternoon, they saw nothing like the dramatic selloffs of previous sessions.
The Dow Jones industrial average rose 110.78, up 1.03, to 10,816.92.
Broader stock indicators also rose, but not as much. The Standard & Poor's 500 index rose 6.35, or 0.52 percent, to 1,230.04, and the Nasdaq composite index rose 13.53, or 0.65 percent, to 2,086.
Bonds fell, with the yield on the 10-year Treasury note rising to 5.06 percent from 4.96 percent late Tuesday. The U.S. dollar was down against most major currencies. Gold prices also fell, closing at $562.30 a troy ounce, far below their recent highs above $700.
International markets have been shuddering as U.S. stocks slid.
Japanese markets rebounded yesterday after their biggest drop in two years and European stocks closed mixed. But markets remained shaky elsewhere. Russia's benchmark index dropped 9.4 percent yesterday after falling 10 percent in Tuesday's trading. Pakistan's benchmark index lost 5.86 percent and Thai stocks fell 3.54 percent.
Both U.S. and global stocks have been pummeled by fears that inflation would reduce spending worldwide, and that the resulting rise in interest rates would make capital more expensive for companies seeking to expand. However, by the time the CPI numbers came out yesterday, analysts said bad inflation news had already been factored into stock prices.