Stocks Finish Higher

Stocks rallied after the Fed's Beige Book pointed to solid, sustained business activity and moderate inflation

Major stock indexes rallied at the close Wednesday, bolstered by comments in the Federal Reserve's Beige Book report that pointed to solid business activity, and only moderate inflation. Treasury yields pulled back from earlier gains, and oil prices, which had been over $56 a barrel, came off session highs.

The Dow Jones industrial average added 18.80 points, or 0.18%, to 10,566.37. The broader Standard & Poor's 500 index rose 2.67 points, or 0.22%, to 1,206.58. The tech-heavy Nasdaq composite index gained 5.88 points, or 0.28%, to 2,074.92.

Crude oil futures settled up 57 cents to $55.57 a barrel, as traders took profits from earlier gains of more than a dollar. Prices surged after weekly oil inventory reports showed lower-than-expected supplies, even as OPEC lifted output quotas.

In economic news Wednesday, a report on inflation at the consumer level in May showed a decline for the first time in 10 months, helping soothe inflation fears. The overall consumer price index fell 0.1% in May, while the core rate, which excludes food and energy prices, rose 0.1%. The core figure came in better than expected, as economists had forecast a 0.2% rise. The data follow a 0.6% slide in the May producer price index, announced Tuesday.

The Federal Reserve's Beige Book Report characterized growth as "moderate, solid, and well sustained," while pointing to "moderate" price pressures. Labor markets improved in most districts, and the report most likely points to the continuation of Federal Reserve Chairman Alan Greenspan's "measured" rate hike tactic.

In other economic news, the New York Fed's manufacturing index for June climbed to 11.65 after an 11.06 drop in May.

The National Association of Home Builder's index moved up to 71 in June from 70 in May, slightly beating the 6-month average. The single family and future indexes also rose, while prospective buyer traffic improved to 54 from 53.

Meanwhile, U.S. industrial production rose 0.4% in April following a 0.3% decline in March (revised from -0.2%). Capacity utilzation rose to 79.4 from 79.1 (revised from 79.2%). The data are a little stronger than expected, notes Action Economics.

In company news Wednesday, investment bank JP Morgan Chase (JPM ) was lower after news that the company agreed to pay Enron investors $2.2 billion to resolve claims of fraud. The JP Morgan news follows a similar settlement agreement from Citigroup (C ) announced on June 10.

Apparel concern Tommy Hilfiger (TOM ) said it expects fiscal 2006 consolidated revenue to decrease in the mid-single digit percentage range, caused by expected order reductions among U.S. department stores and the recent decline in the value of the euro. The company delayed filing its fourth-quarter and fiscal 2005 financial statements.

Bear Stearns (BSC ) shares gained Wednesday after the Wall Street firm posted second quarter earnings per share of $2.56, vs. $2.49 one year earlier, on a 9% rise in net revenue. Bear says its fixed income business remains the dominant player in the marketplace while its equity franchise continues to capture market share.

Late Tuesday, media conglomerate Viacom (VIA.B ) announced a plan to split the company into two separately traded public entities via a spinoff. One company, to be called CBS Corp., will combine the CBS and UPN TV networks, and other units. The other company to be split off will include Viacom's cable TV operations, including MTV Networks and BET.

Treasury Market

Treasury yields fell back from session highs, following the Fed's Beige Book report, which stated that inflationary pressure was only moderate, and that business activity seemed solid. The yield on the 10-year note finished lower at 4.10%.

World Markets

Major European stock indexes finished lower Wednesday. In London, the Financial Times-Stock Exchange 100 index was off 27.30 points. or 0.54%, to 5,019.50 following reports that U.K. unemployment rose 13,200 but the rate remained unchanged at 2.7%, while earnings rose to 4.6% from 4.5% in April.

Germany's DAX index was off 43.27 points to 4,548.42 as oil prices rose even though OPEC agreed to raise output.

In Paris, the CAC 40 index dropped 13.38 points to 4,184.36.

Asian markets ended mixed Wednesday. In Japan, the Nikkei 225 index rose 79.96 points, or 0.71%, to 11,415.88. Continued dollar strength and stock gains on Wall Street Tuesday boosted sentiment.

In Hong Kong, the Hang Seng eased 9.49 points, or 0.07%, to 13,914.30. Seoul's KOSPI index fell 18.19 points,or 1.85%, to 1,001.94.

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