Market rebounds
on inflation report

NEW YORK » Investors cheered by long-awaited good news on inflation pushed stocks higher yesterday, hoping that a lower-than-expected increase in basic wholesale prices meant the economy will stay on a sound footing. Solid first-quarter earnings also fueled buying.

Wall Street had feared that the Labor Department's Producer Price Index, which measures wholesale prices, would show inflation taking hold in the economy. But while the PPI rose 0.7 percent for March due to higher energy and food prices, the closely watched "core" PPI without those volatile costs grew just 0.1 percent, less than the 0.2 percent economists expected.

The Dow Jones industrial average rose 56.16, or 0.56 percent, to 10,127.41, coming off of four straight down sessions and a loss of 436 points.

Broader stock indicators also gained ground. The Standard & Poor's 500 index was up 6.80, or 0.59 percent, at 1,152.78, and the Nasdaq composite index gained 19.44, or 1.02 percent, to 1,932.36.

Worries about U.S. oil refining capacity pushed crude futures sharply higher, keeping stock gains somewhat in check. A barrel of light crude settled at $52.29, up $1.92, on the New York Mercantile Exchange.

Analysts said the PPI report may be showing a clear end to the market's inflation worries -- as long as today's Consumer Price Index, measuring retail prices, also comes in better than expected.

"I believe oil is disinflationary, just because when you spend more on gasoline, you spend less on other things," said John Lynch, chief market analyst at Evergreen Investments. "More importantly, wage growth is moderate, so demand is kept in check. And with demand low, you can't raise prices or trigger inflation. I think we're seeing that in the PPI."

The bond market surged after the PPI report, with the yield on the 10-year Treasury note falling to 4.20 percent from 4.27 percent late Monday. The dollar fell against most major currencies, while gold prices were higher.

The Federal Reserve's steady interest rate hikes, designed to shore up the dollar and combat inflation, may be starting to take their toll on the booming housing market. New housing construction tumbled 17.6 percent in March, according to the Commerce Department, far more than the 4.8 percent drop Wall Street expected. Part of the drop could be attributed to the weather, but rising rates, which have been slow to creep into long-term debt like mortgages, was considered a much larger factor.