Tame inflation cheers
frazzled investors

NEW YORK >> Another jump in oil prices pre-empted a strong rally on Wall Street yesterday, though stocks managed to post modest gains on the strength of a consumer price report that put many investors' inflation fears to rest for the near term.

The three major indexes all finished the session higher, showing resiliency in the face of a new record high in oil futures fueled by continuing problems for Russian oil giant Yukos. A barrel of light crude was quoted at $46.75, up 70 cents, on the New York Mercantile Exchange.

Stocks managed to stay in positive territory thanks to a better-than-expected Consumer Price Index reading. The CPI registered a small drop in July, giving consumers a respite from soaring energy prices.

With consumer spending one of the main drivers of the economy, the news cheered investors who have been concerned that higher oil prices could spur inflation.

"You're going to get some naysayers out there, saying this is just one month, hedging against anything bad coming up, but really, this is great news," said Bill Groenveld, head trader with vFinance Investments. "I think this could be the start of a smooth, cautious recovery."

The Dow Jones industrial average rose 18.28, or 0.2 percent, to 9,972.83. The Dow had pushed past the 10,000 mark earlier in the session before news reports on Yukos' worsening tax situation came out. The last time the Dow closed above 10,000 was Aug. 4.

Broader stock indicators were moderately higher. The Standard & Poor's 500 index was up 2.37, or 0.2 percent, at 1,081.71, and the Nasdaq composite index gained 12.41, or 0.7 percent, to 1,795.25.

The price of the benchmark 10-year Treasury note rose 916 point. Its yield, which moves in the opposite direction, fell to 4.20 percent compared with 4.27 percent late Monday. The 2-year note rose 18 point to yield 2.40 percent, down from Monday's 2.47 percent.

According to the U.S. Labor Department, the CPI fell 0.1 percent in July, the first drop in prices since November and a large shift from the price gains in May and June. Without food and energy costs factored in, the CPI rose 0.1 percent, less than Wall Street had forecast.

Housing construction also saw better-than-expected gains, with the U.S. Commerce Department reporting an 8.3 percent increase in home and apartment construction in July, more than making up for the 7.7 percent drop in June.

The economic data reaffirmed that, despite soaring energy costs, the overall economy remained sound and that inflation, at least for now, has been kept at bay. And if oil prices fall from their current record highs, stocks will be poised to make strong gains, analysts said.

"In the short term, there's enough good news in the economic data to offset oil prices, at least for now," said Chris Wolfe, global head of equities for J.P. Morgan Private Bank.