Drop in oil prices spurs stocks higher
NEW YORK » Wall Street overcame early losses to close higher yesterday as a drop in oil prices and a fresh round of acquisition activity helped boost investors' confidence in the economy.
Gap Inc. surged on a report the retailer is considering strategic alternatives for the business, which could include a sale. There was also some $6 billion of deals announced that indicated merger and acquisition activity is off to a strong start in 2007 after reaching record levels last year.
Low energy prices also helped stocks reverse course from losses earlier in the session. Oil prices continued last week's decline, initiated by belief that heating oil supplies would go unused because of a mild U.S. winter. Crude prices, now hovering around $56 per barrel, attempted a rebound earlier in the session.
Stock trading did carry an element of caution as investors turned their attention toward fourth-quarter earnings, which start today when Alcoa Inc. posts results. Several profit warnings from a number of companies -- including airline UAL Corp., electronics maker Molex Inc., and telecommunications firm Tellabs Inc. -- prevented indexes from gaining broader momentum.
Peter Dunay, an investment strategist with New York-based Leeb Capital Management, said investors are trading conservatively ahead of earnings reports. He said the biggest thing on the horizon is "the impact any kind of profit warnings are going to have."
"This is one of those Mondays were people are doing a bit less until we see an impetus," he said. "The market is at an inflection point. Energy is big, but it has been down so much over the past few weeks that the fact it's up should be scaring participants too much."
The Dow Jones industrial average rose 25.48, or 0.21 percent, to 12,423.49.
Broader stock indicators advanced. The Standard & Poor's 500 index was up 3.13, or 0.22 percent, at 1,412.84, and the Nasdaq composite index added 3.95, or 0.16 percent, to 2,438.20.
A barrel of light sweet crude fell 22 cents to $56.09 on the New York Mercantile Exchange. The dollar was mixed against other major currencies, while gold prices rose.
There was some economic news during the session, but it had little impact on trading. Federal Reserve Vice Chairman Donald Kohn said in a speech that recent inflation data are "encouragingly consistent" with the central bank's forecast for a gradual decline. However, he warned it's still too early for officials to relax about price pressures.