Stocks Gain on Inflation News

A 0.2% rise in the core producer price index helped soothe inflation fears. Bond yields and oil prices moved higher

Major stock indexes ended Thursday solidly higher despite another rise in interest rates and a jump in oil prices.

Traders debated the implications of the U.S. producer price index, or PPI, for inflation. The overall index rose 0.9% in May, faster than expected. However, the core index, which excludes volatile energy prices, rose 0.2%, in line with expectations, which Standard & Poor's says shows inflation is contained. Energy was up 4.1%, gas was up 10.2% and heating oil rose 2.3%.

Initial jobless claims, also reported on Thursday, were unchanged at 311,000 for the week ended June 9.

Inflation data coming Friday could support or dispel the inflation fears associated with higher bond yields and the PPI. The May consumer price index, or CPI, along with industrial production and capacity utilization, arrive on Friday. Investors Thursday may have figured the CPI report will be as tame as the PPI release, according to Standard & Poor's.

On Thursday, the Dow Jones industrial average was up 71.38 points, or 0.53%, to 13,553.73. The broader S&P 500 index was up 7.3 points, or 0.48%, at 1,522.97.

The tech-heavy Nasdaq Composite index was up 17.1 points, or 0.66%, to 2,599.41.

Trading was active, according to Standard & Poor's MarketScope, with traders positioning themselves for Friday's so-called Quadruple Witching, when the monthly stock and index option expirations coincide with the quarterly expiration of stock and index futures contracts.

In other economic data released Thursday, the Mortgage Bankers Association reported a record rise in first-quarter mortgage foreclosures to 0.58%, though delinquencies fell and were caused mainly by ARMs on subprime mortgages. The MBA still expects the housing market to regain its footing at the end of 2007.

In the energy markets Thursday, July WTI crude oil was up $1.49 to $67.75 per barrel. A statement from OPEC said it has no intention to boost production because the market is well supplied. Violence in the Middle East also pushed prices higher, Action Economics says.

Among stocks in the news on Thursday, Goldman Sachs (GS) fell despite beating estimates by reporting earnings of $4.93 per share in the second quarter, vs. $4.86 expected by analysts and $4.78 the same quarter last year. Total net revenues were slightly lower, but investment banking net revenues were up 13% from a year ago.

Bear Stearns (BSC) edged up despite posting lower-than-expected earnings. It reported $2.52 earning per share, vs. $3.54 expected and $3.72 a year ago. Revenues were flat. The quarter includes a 88 cents per share non-cash charge, or $227 million, for write-down of intangible assets.

The Chicago Mercantile Exchange (CME) plans to sweeten its bid for the Chicago Board of Trade (BOT), according to a report in the Wall Street Journal. The move, to add a special dividend for CBOT shareholders, is in response to a move by its rival bidder, the IntercontinentalExchange (ICE), to improve its offer on Wednesday. The CME traded lower, while ICE and CBOT moved higher.

Target Corp. (TGT) edged up after saying it will increase its dividend 17% and add $3 billion to its share buyback program.

Progressive Corp. (PGR) jumped higher after announcing a recapitalization plan that includes an extraordinary cash dividend of $2 per share and an extra $100 million to buy back stock.

Invesco PLC (IVZ) plans to buy back up to $500 million in stock. It was up almost 2%.

European stock markets rallied on Thursday. In London, the FTSE 100 index was up 1.38% to 6,649.9. Germany's DAX index moved up 2.19% to 7,849.16. In Paris, the CAC 40 index was up 1.9% at 6,047.23.

Asian markets were up outside mainland China. In Japan, the Nikkei index was up 0.62% to 17,842.29. In Hong Kong, the Hang Seng index moved 1.4% higher to 20,867.26. In China, the Shanghai Composite index was down 1.47% to 4,115.21.

Treasury Market

Bond prices continued their gyrations Thursday, posting declines after Wednesday's recovery from a plunge in the previous session. The 10-year note eased 05/32 to 94-16/32 for a yield of 5.217%; the 30-year bond slid 10/32 to 91-26/32 for a yield of 5.300%; and the two-year note was flat at 99-20/32 for a yield of 5.08%. Falling prices might reflect a broader move out of bonds amid recent weakness in prices, S&P says.