Newspaper article THE JOURNAL RECORD

Inflation Bubble Bursts; Barometers Soar

Newspaper article THE JOURNAL RECORD

Inflation Bubble Bursts; Barometers Soar

Article excerpt

NEW YORK (AP) -- The stock market soared back toward record levels Tuesday, with the Dow Jones industrial average nearly scoring its biggest point gain ever, as investors celebrated a tame inflation reading on a key inflationary force.

The Dow rose 179.01 to 6,962.03, moving within striking distance of 7,000 for the first time since the start of a nearly 700-point retreat from its March 11 high of 7,085.16.

And in stark contrast with other, seemingly half-hearted efforts to rebound from its recent slide, the broad market kept pace with the blue-chip sector this time. "It's a very high-quality rally today. I'm impressed," said A.Marshall Acuff Jr., a market strategist at Smith Barney, noting that four issues rose for every one that fell on the New York Stock Exchange. "We have great breadth. No one can complain about that today." Stocks were catapulted at the open by the bond market, where interest rates plunged below a psychologically important barrier after the Labor Department reported that Americans' wages and benefits rose a modest 0.6 percent in the first quarter. Investors were also cheered by two separate reports suggesting that other inflationary pressures may be easing. The markets have been pressured by worries that demand is too strong and jobs are too plentiful, forcing manufacturers to raise wages as they compete for employees to meet the heavy workload. However, the resulting increase in employment costs -- which typically constitute two-thirds of a product's price -- has yet to trigger an inflationary spurt. Determined to keep it that way, the Federal Reserve raised one of its key short-term lending rates late last month. Investors have been worried that without signs of economic moderation, the Fed will raise rates repeatedly, slowing spending and borrowing to a point where corporate profits will suffer. Although encouraging, Tuesday's reports are no guarantee that the central bank will stand pat at its next strategy meeting on May 20, particularly with Friday's monthly report on payroll and wage levels looming, analysts said. "I don't think the number today is necessarily the final resolution about the worry about increased inflation," said Acuff, noting that the more crucial concern is the reaction of Fed chairman Alan Greenspan, who is scheduled to make several public appearances this week. …

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