Stocks bounce back
as optimism returns

NEW YORK » Stocks regained ground yesterday as the market's cautious optimism was restored by government data showing only modest inflation, better-than-expected corporate earnings, announcements of two merger deals and the report of a third.

The Dow Jones industrial average rose 62.59, or 0.59 percent, to 10,673.79, following a 174-point slide Tuesday. Analysts said a reflex rally was to be expected after the previous session, which most thought had been oversold.

The broader gauges were also higher. The Standard & Poor's 500 index gained 6.64, or 0.56 percent, to 1,190.80. The Nasdaq composite index was up 0.93, or 0.05 percent, at 2,031.25.

"People were really looking for a reason to buy today. ... Judging by conversations with our clients, people were looking to re-engage," said Brian G. Belski, market strategist at Piper Jaffray. "If we'd had a stronger semblance of inflation, this thing could've really come uncoupled today."

The Labor Department reported a tiny 0.1 percent rise in its Consumer Price Index for January, as energy costs slid for a second straight month. The data, which suggests consumer inflation remains very much under control, was at odds with Friday's reading of the Producer Price Index, which showed higher inflation for wholesale goods. While the discrepancy was puzzling to some, it provided a needed lift for stocks.

Treasuries rallied on the inflation data, sending the yield on the 10-year note to 4.26 percent, down from 4.29 percent late Tuesday. Bond traders were further relieved by the release of minutes from the Fed's Open Market Committee's policy meeting, held earlier this month, which said future rate increases were likely to be "measured."

The dollar, which tumbled Tuesday on rumors that South Korea planned to diversify its currency holdings away from the greenback, recovered somewhat after Seoul's central bank denied the report. Gold fell, as did oil prices, which skidded 25 cents to $51.17 per barrel on the New York Mercantile Exchange.

Toll Brothers Inc. rose 4 percent, or $3.21, to $84.25, as soaring demand for luxury homes boosted profits in the first quarter, prompting the company to raise delivery estimates for 2005. Its earnings blew past the estimates of analysts surveyed by Thomson First Call.

Lowe's Cos. was up 37 cents at $57.90 after the nation's second-largest home improvement chain reported a nearly 27 percent rise in fourth-quarter earnings on an almost 18 percent increase in sales. The results beat Wall Street's expectations by a wide margin, but forecasts disappointed investors.