Financials, H-P Send Stocks Higher

Updated from 4:19 p.m. EST

Stocks in New York overcame an early data-inspired selloff and rose Wednesday amid a rally in financials and buying in computer-related shares.

The Dow Jones Industrial Average closed up 90 points to 12,427, and the S&P 500 added 11 points to 1,360. The Nasdaq Composite rose 21 points to 2,327.

Helping the market rise was a gain of 2.5% in the computer hardware index, led by a 7.9% advance in Hewlett-Packard (HPQ Quote).

Following the last close, H-P posted a fiscal first-quarter profit that rose 38% from a year ago, topping estimates, and offered encouraging guidance. H-P's climb was also reflected in the Dow, where it's one of the 30 components.

Chip stocks were among the winning sectors, with the Philadelphia Stock Exchange Semiconductor Index jumping 2.7%. Also in the green was the NYSE Financial Sector Index, up 1%, and the Amex Securities Broker/Dealer Index, better by 2.3%.

Paul Mendelsohn, chief investment strategist with Windham Financial, noted the firming of the energy and financial sectors, which will often send the market higher. He also pointed out that "we're undoing a lot of the damage that was done yesterday afternoon," when the major averages had a big drop late.

Breadth was positive. About 3.84 billion shares changed hands on the New York Stock Exchange, and about 2.29 billion on the Nasdaq, with advancers beating decliners by about a 3-to-2 margin on each.

Initially, equities had opened lower after the Labor Department said the consumer price index was up 0.4% in January, while the core rate, which excludes food and energy, climbed 0.3%. Both were ahead of consensus expectations.

Traders are jittery about any economic numbers that could give the Federal Reserve a reason to pause its easing campaign, but the latest data, in isolation, probably wouldn't prevent an additional cut in interest rates.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, pointed out that one month doesn't make a trend, and that "we remain of the view that a sustained period of soft demand will bring core inflation down, as it always does. But right now the optics are unfavorable and this report will make it much easier for the Fed to ease only by 25 basis points."

He also said, though, that the year-over-year core increase of 2.5%, the biggest reading in nearly a year, was "a bit disconcerting."

Also on the economic docket, the Fed released the minutes from its most recent meeting on Jan. 29-30, which resulted in a 50-basis-point cut of the fed funds rate to 3%, the lowest level since 2005. The discount rate was also cut by half a point.

The Fed, in its minutes, indicated that many of its previous concerns remain, namely regarding the health of the credit market and the housing sector. Also, in a nod to the predicament the Fed finds itself it, the central bank cut its economic expansion target for the fourth quarter, but raised its expectations for consumer price growth in 2008.

The minutes said that while the functioning of money markets had "improved notably" since December, "strains remained evident in a number of other financial markets, and credit conditions had become generally more restrictive. Against this backdrop, participants expected economic growth to remain weak in the first half of this year before picking up in the second half, aided in part by a more accommodative stance of monetary policy and by likely fiscal stimulus."

Officials at the meeting predicted that the economy would continue to pick up gradually next year and in 2010.

With regard to the latest rate reduction, most of the voters felt that "a further significant easing in policy was warranted at this meeting to address the considerable worsening of the economic outlook since December as well as increased downside risks." Most members believed the easing "would likely not contribute to an increase in inflation pressures" -- and, in fact, that inflation will likely moderate in coming quarters -- "given the actual and expected weakness in economic growth and the consequent reduction in pressures on resources."