Benign Data Fire Up Bulls

Stocks surge after an economic report shows easing price growth at the wholesale level.
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Updated from 4:08 p.m. EDT

Stocks closed sharply higher Tuesday as traders cheered a report showing a slowdown in wholesale inflation, giving them hope the

Federal Reserve

will keep interest rates where they are.

The

Dow Jones Industrial Average

gained 132.39 points, or 1.19%, to 11,230.26, and the

S&P 500

rose 17.36 points, or 1.37%, to 1285.57. The

Nasdaq Composite

surged 45.97 points, or 2.22%, to 2115.01, putting the index back into positive territory for the year.

Gains of 2.4% or more in

Home Depot

(HD) - Get Report

,

JPMorgan Chase

(HD) - Get Report

and

DuPont

(DD) - Get Report

powered the Dow's climb.

On the Nasdaq,

Amylin Pharmaceutical

(AMLN)

jumped 9.8%, and

Nvidia

(NVDA) - Get Report

was higher by 9.6%.

"Traders were not positioned for this kind of inflation surprise today," said Barry Hyman, equity market strategist with EKN Financial. "We saw movement into growth stocks away from defensive-style plays. We had great moves today on the indices, a reaction that was very positive. Now we have to move onto the next few data points."

About 1.52 billion shares changed hands on the

New York Stock Exchange

, with advancers beating decliners by a 5-to-1 margin. Volume on the Nasdaq was 1.79 billion shares, and three times as many stocks rose as the number that fell.

Even with a host of corporate earnings reports, the focus was on economic data. The Labor Department said its July producer price index rose 0.1%, compared with expectations of a 0.4% increase. The core PPI, which excludes food and energy, fell 0.3%. Economists expected the core rate to rise 0.2%.

"The core inflation rate was better than expected and was the first decline since October of 2005," said Michael Sheldon, chief market strategist with Spencer Clarke. "This has provided a positive backdrop for the fixed-income markets. A lot of people will greet this data positively as it provides more evidence the Federal Reserve may be right that a slowdown in the economy will lead to lower inflation."

However, Sheldon warns that "the one worry is that inflation at the crude

oil level remains at fairly high levels and need to be monitored in future months."

On Wednesday, the government will release the consumer price index for July.

To view Gregg Greenberg's video take on today's market, click here

.

The futures market was pricing in 15% odds of a 25 basis-point rate increase to 5.5% at the Fed's Sept. 20 meeting, down from 25% Monday. Following the PPI report, the 10-year Treasury rose 16/32 in price and was yielding 4.93%. The dollar fell against the euro but rose against the yen.

Also on the economic docket, the New York Empire State Index fell to 10.3 in August from a revised 16.6 the previous month.

The PPI report somewhat overshadowed quarterly earnings from a number of chain stores, including the world's largest retailer,

Wal-Mart

(WMT) - Get Report

. The company said its second-quarter profit from continuing operations rose 4.6% year over year, but the company indicated that its current quarter earnings could be on the light side of forecasts.

Wal-Mart's net sales for the second quarter were $84.52 billion, an increase of 11.3% from last year, but below expectations. Earnings from continuing operations for the quarter totaled $2.98 billion, or 72 cents a share, up from $2.85 billion and 68 cents a share last year.

Total revenue was $85.43 billion. Analysts were looking for a profit of 72 cents for the latest quarter with sales of $86.24 billion. The company said third-quarter earnings could be 59 cents to 63 cents a share, against the consensus target of 63 cents, but its full-year forecast bracketed the average expectation of $2.92. Wal-Mart dropped 55 cents, or 1.2%, to $44.55.

Another member of the Dow, Home Depot, earned $1.86 billion, or 90 cents a share, for the quarter ended July 30, up from $1.77 billion, or 83 cents a share, a year ago.

Excluding a charge, earnings were 93 cents a share, a penny ahead of the consensus estimate. Sales of $26.03 billion beat the $25.5 billion average forecast. Home Depot finished up $1.18, or 3.6%, to $34.44.

Elsewhere,

Dell

(DELL) - Get Report

closed higher despite a recall of 4.1 million laptop-computer batteries made by

Sony

(SNE) - Get Report

. The company said the batteries could overheat and create a fire hazard.

Dell rose 84 cents, or 4%, to $22.08. However, Dell is still down 26.3% for the year.

According to a report in the

New York Post

, Carl Icahn boosted his stake in

Time Warner

(TWX)

by more than 8% during the second quarter, fueling speculation the billionaire investor might resume his bid for changes at the company. The increase brings Icahn's stake to nearly $1 billion. Time Warner added 3 cents, or 0.2%, to $16.08.

Among other earnings,

Agilent

(A) - Get Report

posted third-quarter profits of $227 million, or 54 cents a share, more than doubling the year-ago results. Quarterly revenue increased to $1.45 billion from $1.24 billion last year. Excluding items, the company earned $195 million, or 46 cents a share, a nickel better than Wall Street expected. Agilent jumped by $2.65, or 9.3%, to $31.12.

Staples

(SPLS)

closed higher after the retailer reported second-quarter income of $161 million, or 22 cents a share, up 19% from a year earlier. Results matched the Thomson First Call average estimate. Staples was up 12 cents, or 0.5%, to $23.65.

Apparel retailer

American Eagle Outfitters

(AEOS)

reported second-quarter net income of $72 million, or 47 cents a share, up from $58 million, or 37 cents a share, a year ago. Results beat the average projection by a penny a share. American Eagle rose $1.69, or 4.9%, to $36.20.

In M&A activity,

Monsanto

(MON)

said it will acquire

Delta & Pine Land

(DLP)

for $1.5 billion in cash, or $42 a share. Monsanto tacked on 39 cents, or 0.9%, at $45.56, while Delta & Pine Land surged 11.3%, to $40.34.

Kinder Morgan

(KMI) - Get Report

said it will sell its retail gas operations to

General Electric's

(GE) - Get Report

energy financial services arm for $710 million, plus working capital. The sale should be completed by the first quarter of 2007. Kinder Morgan was ahead by a penny to finish at $101. GE climbed 38 cents, or 1.2% to $33.20.

On the research front, Citigroup upgraded both

AMR

(AMR)

and

Southwest Airlines

(LUV) - Get Report

to buy from hold, citing the recent decline in airline stocks.

AMR gained 79 cents, or 4.1%, to $20.05. Southwest tacked on 55 cents, or 3.4%, to $16.99. Both gains propped up the Amex Airlines Index, which rose 2.1%.

Crude was lower by 48 cents to finish at $73.05 a barrel, as concerns eased over production. On Friday,

BP

(BP) - Get Report

said it would continue oil production from the western side of Alaska's Prudhoe Bay field.

Global equity markets were mixed, with London's FTSE 100 up 0.5% to 5898 and Germany's Xetra DAX adding 1.5% to 5777. Japan's Nikkei gave back 0.3% to 15,816, and Hong Kong's Hang Seng was off 0.1% to 17,274.