Stocks Finish Higher

A drop in oil prices, strong earnings from retailers, and firm economic data helped lift the major indexes

Stocks rose Thursday as oil prices dropped and a few retailers reported strong earnings. Investors were betting that the Federal Reserve will not be aggressive in raising rates since the latest economic data was firm, but not steaming, according to Standard & Poor's MarketScope.

The Dow Jones industrial average rose 95.31 points, or 0.94%, to 10,205.2, led by Boeing (BA ). The Nasdaq composite index gained 8.35 points, or 0.42%, to 1,984.5. The broader Standard & Poor's 500-stock index was up 6.32 points, or 0.57%, at 1,121.26.

In economic news Thursday, first-time jobless claims fell 3,000 to 344,000 for the week ending May 22. Though the drop was less than expected, the data is still consistent with an improving labor market, says Informa Global Markets.

The first revision to first-quarter gross domestic product was 4.4%, up from 4.2% previously. The change in inventories added $28.2 billion rather than $15.3 billion -- a big source of the upward revision, says Informa.

Meanwhile, corporate profits, not reported in the initial GDP update, jumped $14.4 billion in the first quarter after adjustment for inventory valuation and capital consumption. Profits are up 31.6% from a year earlier, in line with the rise in operating earnings reported.

"The GDP report is in line with market expectations for the revisions, but the profits data are somewhat stronger," notes Standard & Poor's chief economist David Wyss.

Economic data coming Friday include personal income and spending, the Chicago PMI manufacturing survey, and the University of Michigan consumer sentiment index.

In commodities trading, July crude oil futures fell below the $40-per-barrel mark Thursday on growing hopes for a boost in OPEC production. Energy Secretary Spencer Abraham says the U.S. sees signs of extra oil supplies from Mexico, Nigeria, and Russia as well as Saudi Arabia, reports Standard & Poor's MarketScope. Oil stocks fell on the news.

The U.S. dollar continued to weaken vs. the major currencies, especially the euro and Japanese yen. The recent slide has been largely attributed to technical factors, as most market participants continue to expect Fed action sooner rather than later, says Informa Global Markets.

A few retailers rallied Thursday on strong earnings news Thursday. Costco Wholesale (COST ) reported higher than expected third-quarter earnings per share of 42 cents, vs. 33 cents a year ago, on an 11% same-store sales rise and 14% total revenue rise.

Dollar General (DG ) posted first-quarter EPS of 31 cents, vs. 29 cents a year ago, on a 15% net sales rise. The dollar-store chain sees $700 million to $715 million in second-quarter sales, and $3.2 billion to $3.3 billion in fiscal year 2005 sales.

Guidant (GDT ) held a conference call Thursday to provide an update on its drug eluting stent program and timelines. The stock rebounded Thursday, after taking a dive Wednesday after the company announced it has discovered problems with its Champion stainless steel stent.

Home Depot (HD ) set a $1 billion stock buyback, and raised its quarterly dividend to 8.5 cents per share from last quarter's 7 cents.

Lone Star Steakhouse (STAR ) warned that it sees lower-than-expected second-quarter EPS of 20 cents to 24 cents. It says meat costs, which account for 60% of its cost of sales, are up 17% for comparable restaurants in the first 8 weeks of the second quarter vs. the prior-year period.

There are no major companies expected to report earnings on Friday.

Treasury Market

Treasury prices shot higher, pushing the 10-year note yield down to a three-week low of 4.60%, on bets that the Fed will not be aggressive in raising rates, as the latest economic data was firm but not feverish. The rally was partly on flight to safety on news that explosives were found in Slovakia near the site of tomorrow's NATO meeting, reports Standard & Poor's MarketScope.

World Markets

European stock markets finished higher. London's FTSE 100 index was up 15.3 points, or 0.34%, to 4,453.6 following reports that British factory orders rose at the fastest pace in 6 years in May, while consumer confidence was unchanged on the month, and May house prices rose at the fastest pace in 12 months.

Germany's DAX index rose 45.81 points, or 1.18%, to 3,913.33 as energy futures fall sharply following inventory reports. In Paris, the CAC 40 index gained 19.45 points, or 0.53%, to 3,679.37 even though French business confidence fell from a 3-year high.

Asian markets finished higher. In Japan, the Nikkei index rose 13.94 points, or 0.13%, to 11,166.03 helped by rises in techs and telecoms. But gains were limited as investors took a breather as Japan's corporate earnings season draws to an end.

In Hong Kong, the Hang Seng index jumped 291.34 points, or 2.49%, to 11,983.9 after the winning prices at a public land auction -- Hong Kong's first since land sales were resumed under the application list system this year -- exceeded all expectations, reports Standard & Poor's MarketScope.