Dow surges on positive
inflation report

The index, ahead 219, ends up 88

Associated Press

NEW YORK -- Blue-chip stocks rose today after a report of moderate inflation calmed fears about higher interest rates, but the renewed optimism failed to lift technology stocks, which fell following a profit warning from Dell Computer.

The Dow Jones industrial average rose 88.65 points to close at 10,204.93, extending its gain of 96.57 yesterday. The index had fallen back from an earlier gain of 219 points.

The Standard & Poor's 500 rose 7.19 to 1,261.32, but the Nasdaq composite index fell 0.97 to 2,688.18.

Advancing issues outnumbered decliners by an 8-to-7 margin on the New York Stock Exchange, with 1,612 up, 1,398 down and 490 unchanged. NYSE volume totaled 907.57 million shares vs. 802.7 million yesterday.

The NYSE composite index rose 5.43 to 585.05; the American Stock Exchange composite index gained 1.43 to 775.92; the Russell 2000 index of smaller companies rose 2.03 to 410.93.

The 30-year bond fell 11/32, or $3.44 per $1,000 face value; its yield rose to 6.36 percent from 6.32 late yesterday.

Stocks initially soared after the Labor Department said its Consumer Price Index, the government's most closely watched inflation gauge, jumped 0.4 percent in September. That was the biggest increase in five months, but in line with Wall Street expectations.

A persistent fear that inflation is on the rise has sent stocks plunging in recent weeks, driving the Dow 10.7 percent below its Aug. 25 record close. Investors fear rising inflation will prompt the Federal Reserve to raise interest rates for the third time this year in a bid to slow economic growth.

While the report is unlikely to prevent the Fed from raising rates, analysts were heartened by components of the report that suggested inflation remains under control. Outside of the volatile food and energy sectors, prices were up 0.3 percent, leaving the so-called core rate of inflation rising at a much more moderate 1.9 percent so far this year.

"The stock market was looking for any piece of good news," said Robert B. MacIntosh, vice president and portfolio manager at Eaton Vance Management in Boston. "Having a number today that was in line with estimates was a major relief."

Bank and financial stocks rose today, benefiting from the improved outlook for interest rates. American Express and Bank of America posted solid gains.

Strong corporate earnings reports added to the market's strength. Johnson & Johnson rose after reporting earnings that beat analysts' expectations.

The financial and drug sectors also attracted investors in search of bargains after weeks of declines on Wall Street, said Richard A. Dickson, a technical analyst at Scott & Stringfellow Inc. in Richmond, Va.

"What you're seeing is a rebound in some of the stocks that have beaten down quite a bit," he said. "There's some substance to it, but maybe less than meets the eye."

Following yesterday's pattern, technology stocks lagged the broader market. Dell fell after saying late yesterday a surge in the price of computer memory chips will likely hurt its third-quarter earnings.

The warning from Dell, the nation's largest direct seller of computers, fostered fears that many computer makers will face similar troubles. Also, Dell's decision to reduce the amount of memory it uses in its computers, hoping to cut costs, hammered chip makers like Intel and Micron Technology.