Saturday, August 14, 1999

Price report cheers markets

Inflation stays low

The Associated Press

        NEW YORK — Friday the 13th was a good day on Wall Street.

        Stocks soared Friday as a new government report suggested inflation remains in check, raising hopes that the Federal Reserve need not be aggressive in raising interest rates to cool the economy.

        The Dow Jones industrial average closed up 184.26 at 10,973.65, a gain of 1.7 percent. For the week, the blue-chip index gained 259.62 points.

        Broader stock indicators were also sharply higher.

        The stock market gained ground as interest rates retreated in the bond market on a Labor Department report of a modest rise in the Producer Price Index, a measure of inflation pressure before it reaches the consumer.

        Prices at the wholesale level rose a less-than-expected 0.2 percent in July, the Labor Department said.

        “That was the trigger for the rally. The market had a very understandable, predictable reaction to good news.” said Ricky Harrington, technical analyst at Wachovia Securities in Charlotte, N.C. “The market is very sensitive to all this data. Market psychology can change in a minute.”

        Investors have been ner vous for weeks about the likelihood that Fed policymakers will raise interest rates for a second time this summer when they meet Aug. 24. There also are fears of a third rate increase this fall if the economy shows signs of overheating.

        The small advance in wholesale prices, if matched at the consumer level, could ease concerns at the Fed about a potential breakout of inflation.

        “We will hold to the view that the Fed will tighten,” said Michael Moran, chief economist at Daiwa Securities America Inc. But he said various components of the survey indicated inflation may never make its way to consumers, and that should mollify the Fed.

        The brighter outlook on interest rates powered a strong rally, especially in technology and financial services sectors.

        Leading Dow industrials were American Express and J.P. Morgan. On the Nasdaq, Microsoft and Intel advanced.

        Recently battered Internet stocks gained, with search engine Yahoo and online auction firm eBay rising on the Nasdaq. America Online rose on the New York Stock Exchange.

        It's expected that Wall Street will remain intensely focused on any possible signs of inflation in the days leading to the Fed's next meeting. Next week, the government will release its Consumer Price Index, another barometer of inflationary pressures. Bad news could stop the market's run.


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- Price report cheers markets