Earnings concerns
weigh down stocks

NEW YORK » Investors burdened by angst about upcoming earnings reports shrugged off a spate of mergers and acquisitions news yesterday, leaving stocks with only modest gains.

A flurry of merger activity -- a buyout of video rental chain Hollywood Entertainment Corp., reported merger talks between Wells Fargo & Co. and British financial giant Barclays PLC and a deal in the wireless telephone sector -- was seen as a sign that the economy would remain strong enough to support such deals.

That helped take the edge off of oil prices, which topped $47 per barrel for the first time since Dec. 1 before falling substantially in late trading. A barrel of light crude settled at $45.33, down 10 cents, on the New York Mercantile Exchange.

But while the markets rose in somewhat uncertain trading, analysts said earnings reports were foremost on investors' minds -- especially corporate profit outlooks for 2005, which could include how companies feel about the prospects for inflation.

The Dow Jones industrial average rose 17.07, or 0.16 percent, to 10,621.03.

Broader stock indicators were moderately higher. The Standard & Poor's 500 index was up 4.06, or 0.34 percent, at 1,190.25, and the Nasdaq composite index gained 8.43, or 0.4 percent, to 2,097.04.

A Commerce Department report showed that wholesale inventories rose by 1.1 percent in November. Economists expected inventories to rise just 0.7 percent, slightly less than the 1.1 percent climb in October. But the report didn't affect stock trading; analysts saw the rising inventories as companies hedging against economic uncertainty, particularly rising wholesale prices and possible inflation.

Inflation likely will continue to be a critical concern on Wall Street through earnings season, as companies discuss their forecasts for 2005. If companies are concerned that interest rates will rise quickly in response to a falling dollar and mounting inflationary pressures, then stocks could fall, putting a definitive end to the markets' postelection rally that sagged last week.

In corporate news, Hollywood Entertainment agreed to an $850 million buyout by Movie Gallery Inc., whose offer topped that of Blockbuster Inc. by 15 percent. Movie Gallery is poised to become the second-largest video chain in the United States, behind Blockbuster. Hollywood Entertainment gained 81 cents to $13.86 and Movie Gallery added 94 cents to $20.02, while Blockbuster was down 17 cents at $9.12.