Stocks Finish Flat

The major indexes seesawed after reports dampened deflation fears and showed a still-strong housing sector

Stocks finished Tuesday's seesaw session mostly flat on the heels of Monday's strong gains. The latest report on consumer prices may allay some of the recent fears about deflation, while fresh data on housing showed that market isn't cooling off.

The Dow Jones industrial average gained 4 points, or 0.04%, to 9,323.02. The technology-laden Nasdaq composite rose 1.87 points, or 0.11%, to 1,668.45. The broader Standard & Poor's 500 index edged up 0.94 points, or 0.09%, to 1,011.68.

In economic news Tuesday, the consumer price index was unchanged in May, with the core index (excluding food and energy) up 0.3%, firmer than expected. That follows a 0.3% overall decline in the CPI in April, while the core was unchanged. On a year-over-year basis, the CPI is up 2.1%, while the core is up 1.6%.

On the month, energy prices fell 3.1% and apparel was down 0.3%. Those factors offset 0.4% gains in housing and medical costs, and a 0.3% rise in food and recreation prices. The strength in the CPI may cause investors to factor out some of the overblown deflation fears, says economic research outfit MMS International.

Housing starts jumped 6.1% in May to a 1.732 million unit annual pace from an upwardly revised 1.632 million unit pace, well above market median forecasts of 1.70 million units. Permits rose 3.7% to a 1.788 million unit pace from an upwardly revised 1.724 million unit pace. Housing completions rose 4.5% to a 1.784 million unit pace from 1.707 million. Overall, the housing sector continues to be a pillar of economic growth thanks to record low mortgage rates, says MMS.

U.S. industrial production rose 0.1% in May, following a revised 0.6% decline in April (-0.5% initially), in line with expectations. That left May capacity utilization at 74.3%. On net, the data suggest no pick-up yet in real sector activity, says MMS. And given that capacity utilization is currently hovering at 74.3% -- 7% below its 1972-2002 average -- a lot of excess capacity still appears to be in place, MMS says.

This report suggests inflation pressures should remain benign and will be one of the factors encouraging the Fed to ease interest rates on Wednesday, June 25, says MMS. Nonetheless, real sector activity could be on the verge of a pick-up given the acceleration seen in the manufacturing surveys in May and early June, notes MMS.

There are no significant economic reports scheduled to be released Wednesday.

Among sectors on the move Tuesday, gold, auto, utility, and managed health-care stocks were higher, while broadcasting and cable and homebuilding stocks fell.

Pharmaceutical stocks rose after Pfizer (PFE ) predicted strong 2004 growth. The company held its analyst meeting today, and was reportedly set to unveil an experimental drug to help smokers quit that analysts say could become blockbuster.

In earnings news, Circuit City (CC ) reported a first-quarter loss per share from continuing operations of 21 cents, vs. a penny loss a year ago, on 10% lower same store sales.

Another retailer, Payless ShoeSource (PSS ) got hit after the shoe chain said it expects low double-digit negative second-quarter same-store sales, with considerable pressure on margins, and net earnings per share of a nominal loss to slight profit. The company said cold weather stunted sales of sandals. S&P downgraded the stock to avoid from accumulate on the news.

Tyco International (TYC ) says it will restate results for prior fiscal periods in connection with previously announced review of its periodic filings by the SEC. It says it will reduce reported results for fiscal years 1998 through 2001, and increase results for fiscal year 2002 and the first half of fiscal year 2003.

The biggest weight on the Dow average was AT&T (T ), which fell after Merrill Lynch downgraded its rating on the shares to sell from neutral.

Treasury Market

Treasuries fell again in price Tuesday following the release of the May CPI report which registered a 0.3% core gain and temporarily squelched imminent deflation risks. This helped yields continue to backpedal higher from recent historic lows as the probability of a second quarter-point interest rate cut by the Fed was pared further from over 70% to less than 50%. says MMS International.

World Markets

European stock markets were higher. London's FTSE 100 index was up 37.5 points, or 0.9%, to 4,190.4. In Paris, the CAC-40 index gained 26.26 points, or 0.8%, to 3,200.75. In Frankfurt, the DAX index rose 21.98 points, or 0.67%, to 3,286.48.

Asian markets finished with strong gains Tuesday. Japan's Nikkei 225 index jumped 193.17 points, or 2.19%, to close at 9,033, taking a cue from Monday's sharp gains on Wall Street. The Nikkei closed above 9,000 for the first time since Dec. 4. Hong Kong's benchmark Hang Seng index gained 168.09 points, or 1.70%, to close at 10,030.37.

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