Stocks Finish Higher

Budget surplus, narrowing trade deficit bolstered the markets, but hedge fund worries kept a lid on the gains

Stocks finished higher Wednesday as April's U.S. budget surplus of $57.7 billion was higher than expected. Gains were limited, however, on concerns that troubles in the hedge fund industry might spread into securities. Investors pondered news of a shrinking trade gap, falling oil prices, and a better-than-expected earnings report after Tuesday's close from Cisco Systems (CSCO ).

On Wednesday, the Dow Jones industrial average rose by 19.14 points, or 0.19%, to 10,300.25. The broader Standard & Poor's 500 index gained 4.89 points, or 0.42%, to 1,171.11. The Nasdaq composite index added 8.78 points, or 0.45%, to 1,971.55.

The market was able to recover from an earlier scare involving the evacuation of the White House and Capitol Building. It was later found to be related to a small plane flying into restricted air space, and the all-clear signal has been given.

In economic news Wednesday, the U.S. trade deficit narrowed in March to $54.99 billion, a sharp drop from February's record deficit. Exports climbed 1.5% after remaining flat in January and February, and overall imports dropped 2.5%. Crude oil imports, however, were up by 5.7%. Economists surveyed by Action Economics had expected the trade deficit to come in at $61.5 billion. The February trade deficit figures were also revised lower, from $61.04 billion to $60.57 billion.

Crude oil for June delivery fell sharply Wednesday, down $1.62 to $50.45 a barrel, amid a larger than expected rise in inventories, according to the EIA weekly report.

In company news, Eastman Kodak (EK ) announced it would replace its current chief executive, Daniel Carp, with president and chief operating officer Antonio Perez on June 1. Carp will retain his position as Chairman until January 1, 2006, at which point Perez will assume that position. The change comes as Kodak struggles to make the move from traditional film to digital photography, according to a wire-service report.

Warner Music (WMG ) failed to wow investors with its IPO Wednesday, and shares slumped on speculation that growth in online music would hurt the future of record companies.

And Warner came to market on a day when competition among online music providers reached a new plateau. Yahoo (YHOO ) announced Wednesday it will launch an online music service. Shares of competing music service providers Napster (NAPS ), RealNetworks (RNWK ), and Apple (AAPL ) all traded lower on the news.

In earnings news, Cisco reported its earnings after the close of trading Tuesday. The networking-gear giant saw earnings excluding special items of 23 cents a share, vs. 19 cents a year ago, on a 10% revenue rise. The earnings were a bit above analysts' estimates.

DreamWorks Animation (DWA ) also posted its earnings after the close Tuesday, but fell well short of average analyst expectations. The company reported first-quarter earnings of 44 cents a share, vs. 33 cent a share loss last year, citing disappointing DVD sales of Shrek 2. Analysts had pegged earnings at around 57 cents per share.

In M&A news, children's clothing brand Oshkosh B'Gosh (GOSHA ) agreed to be acquired by retailer Carter's (CRI ) for $312 million, or $26 per share in cash.

Entertainment giant Disney (DIS ), which was originally expected to make its earnings announcement after the close Wednesday, issued its second-quarter report. The company saw earnings increase to 33 cents per share, vs. 26 cents last year. This beat analyst estimates by a penny.

Up ahead, companies reporting quarterly earnings later this week are discount retailers Wal-Mart (WMT ) and Target (TGT ) and computer giant Dell (DELL ) on Thursday.

Later this week, investors will get a report on April's retail sales, expected Thursday. Retail sales are expected to grow by 0.7%, up from 0.3% in March.

Treasury Market

Treasuries finished mixed Wednesday, with the yield on the 10-year note rising to 4.20% while the yield on the 30-year bond fell to 4.55%. The market largely ignored a surprise drop in the March trade deficit. A flight to safety drove price strength in the morning on sustained concerns about hedge fund industry, as well as troubles at airlines. Money moved back into equities as the April budget surplus came in higher than expected.

On the back of the better-than-expected trade deficit news, the dollar gained strength across the board. Following the news, the euro traded at $1.28.

World Markets

European stocks finished lower Wednesday. In London, the FTSE 100 was down 17 points, or 0.35%, to 4,875.40. The decline was linked to concerns expressed by the Bank of England over an increase slowdown in consumer spending. The UK's March trade deficit was the narrowest it has been in a year, with a significant decline in demand for consumer goods.

Germany's DAX index fell 6.97 points, or 0.16%, to 4,244.16. Aixtron and Carl Zeiss Meditec were both several percentage points lower.

In Paris, the CAC 40 index dropped 20.72 points, or 0.52%, to 3,979.53, after French industrial production fell in March, adding to worries of an economic slowdown in Europe.

Asian markets finished lower Wednesday, in the wake of Tuesday's U.S. market losses. Japan's Nikkei 225 index fell 38.76 points, or 0.35%, to 11,120.70. The auto sector dragged on the market, after Suzuki Motor lowered its 2005 guidance and Toyota posted lower-than-expected quarterly earnings.

In Hong Kong, the Hang Seng index was down 78.58 points, or 0.56%, to close at 13.939.80. The markets extended losses as speculation on the Chinese yuan revaluation cooled off, and majors Wheelock, China Mobile, and China Unicom all saw shares trade lower.

Before it's here, it's on the Bloomberg Terminal.