Stocks Finish Mixed on Rate Worries

Earnings reports were mostly positive, but a Fed official suggested the possibility of additional rate hikes

Stocks finished mixed Thursday, as a Fed official's hints at further rate hikes stymied an early rally on solid corporate earnings and labor-market news. Wall Street was also watching the re-introduction of the 30-year Treasury bond.

The Dow Jones industrial average rose 24.73 points, or 0.23%, to 10,883.35. The broader Standard & Poor's 500 index edged lower 1.87 points, or 0.15%, to 1,263.78. The tech-heavy Nasdaq composite index fell 11.11 points, or 0.49%, to 2,255.87.

Recent advances failed to impress some analysts. "Despite the gains in some big cap stocks, [Wednesday's] rebound was no reason for the bulls to celebrate," says Richard Dickson, senior market strategist for Lowry's Reports. "Another few days of similarly mediocre demand and it could be the bears donning party hats."

But the markets might be underestimating the strength of the economy, others maintain (see BW, 2/13/06, ). "We expect an extended process in which markets and businesses improve their perceptions of the U.S. economy," says David Malpass, chief global economist with Bear Stearns. "This should help increase U.S. equity values over time."

Investors weighed remarks from Chicago Fed chief Michael Moskow on Thursday. He said more rate increases may be "appropriate," adding that he expects core PCE inflation to rise in 2006 from 2005, though headline inflation may drop.

Earnings reports continued to set a positive tone after strong results the previous session from Cisco (CSCO) and PepsiCo (PEP). Aetna (AET), Marriott International (MAR) and News Corp. (NWS) all reported higher profits than last year. Electronics retailer Best Buy (BBY) was up after raising its earnings guidance. After the bell, MetLife (MET posted higher fourth-quarter net income of 88 cents a share, up from 68 cents a share.

On the economic front, initial jobless claims rose 4,000 to 277,000, less than expected, says Action Economics. December wholesale sales rose 1%, beating Wall Street forecasts.

Personnel news was also in focus. Software giant Oracle (ORCL) is seen announcing more than 1,000 job cuts with its quarterly earnings. General Motors (GM), Delphi (DPHIQ) and the United Auto Workers union have reportedly stalled in talks over job cuts at Delphi.

Morgan Stanley (MS) tapped Zoe Cruz and Robert Scully as its co-presidents after Wednesday's close, in the wake of internal discord at the investment bank last year. Computer maker Gateway (GTW) said CEO Wayne Inouye had resigned and named Rick Snyder, formerly president and chief operating officer, as interim CEO.

In M&A activity, News Corp. (NWS) Chairman Rupert Murdoch said the company will look at acquiring Spanish-language broadcaster Univision (UVN). Other potential suitors named in reports include CBS (CBS), Disney (DIS) and Time Warner (TWX).

Among other companies in the news, insurer American International Group (AIG) reportedly reached a record settlement of more than $1.6 billion with state and federal regulators over alleged accounting improprieties.

In the energy markets Thursday, March West Texas Intermediate crude oil futures ended unchanged at $62.54.

European markets finished higher. In London, the Financial Times-Stock Exchange 100 index climbed 83.6 points, or 1.46%, to 5,808.7. Germany's DAX index gained 77.27 points, or 1.36%, to 5,743.68. In Paris, the CAC 40 index rose 60.66 points, or 1.24%, to 4,955.74.

Asian markets ended higher. Japan's Nikkei 225 index rallied 166.99 points, or 1.03%, to 16,439.67. In Hong Kong, the Hang Seng index added 39.99 points, or 0.26%, to 15,413.43. Korea's Kospi index rose 10.67 points, or 0.81%, to 1,321.66.

Treasury Market

Prices for 10-year Treasury notes were modestly higher at 99-22/32 with a yield of 4.54%, while the newly issued 30-year bonds rose to 110-24/32 for a yield of 4.64%. The $14 billion sale of 30-year bonds, the first in five years, went off without a hitch, says Action Economics.

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