Inflation Cools, Stocks Warm Up

Stocks rebound from Thursday's selloff with a little help from tame PPI data.
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Updated from 4:01 p.m. EST

Stocks managed a rare winning session Friday but closed lower for the week again, as an unexpectedly large decline in December's producer price index eased some concerns about the

Fed's

need to take a more aggressive approach in raising interest rates to contain inflation.

The

Dow Jones Industrial Average

rose 52.14 points, or 0.5%, to 10,558.00; the

S&P 500

added 7.07 points, or 0.6%, to 1184.52; while the

Nasdaq

gained 17.35 points, or 0.8% to 2087.91, after it hit a new seven-week low yesterday. The Dow and S&P 500 both fell for the week, while the Nasdaq gained a fraction. U.S. markets will be closed Monday in observance of Martin Luther King Jr. Day.

Volume on the

NYSE

was 1.34 billion shares, with advancers beating decliners by a ratio of 2 to 1. Volume on the Nasdaq was 2.07 billion shares, with advancers outpacing decliners by about the same ratio.

In other markets, the 10-year Treasury bond was down 11/32 in price with the yield up to 4.21%, while the dollar was higher against the yen and lower vs. the euro.

"Beyond the good economic news, the market has been stuck in a narrow range," said Ken Tower, chief market strategist with CyberTrader. "They rally, they hit a low, and then they rally back. The market is almost teasing anyone that's looking for a trend. While the undertone is weak, the actual progression has been quite flat."

The government said the producer price index for December fell 0.7%. Economists expected a 0.2% decrease after a 0.5% uptick in November. Excluding food and energy costs, prices rose 0.1%, vs. a consensus forecast calling for a 0.2% increase. Energy prices dropped 4% during the month.

"The PPI number puts inflation in context, that as we stand today, inflation is not the dramatic concern that most forecasts have built for 2005," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "It was a good number, it helps the market, but more importantly the industrial production numbers were even better, higher than expected. It's telling you the economy is in good shape."

The PPI report received unusually high attention, given investors' recent worries that the latest minutes of the

Fed's

FOMC meeting showed heightened concerns about inflation.

In other economic news, the central bank said that output at U.S. factories, mines and utilities rose 0.8% in December, better than the expected 0.4% increase. Comparatively, the number was 4.4% higher than in December 2003, and was up from a 0.2% gain in November.

Energy prices rose again after Thursday's surge. In Nymex floor trading, the February crude contract closed up 34 cents to $48.38 a barrel, the highest level since Nov. 30. Crude futures gained $2.95, or 6.5% for the week.

In corporate news, Piper Jaffray raised its earnings expectations and price target for

Yahoo!

(YHOO)

. Shares rose $1.37, or 3.9%, to $36.70.

Sun Microsystems

(SUNW) - Get Report

was in focus again Friday after the tech company late Thursday said it swung to a profit in its second quarter even as sales dipped 1.6% to $2.84 billion, which was below what Wall Street had expected. The stock fell 36 cents, or 7.9%, to $4.22.

General Motors

(GM) - Get Report

shares fell again in the wake of its earnings forecast. The automaker said 2004 earnings will be in line with previous guidance of $6 to $6.50 a share, excluding items. But health care costs raised concerns among investors. Shares were off 19 cents, or 0.5%, to $37.13.

Applied Materials

(AMAT) - Get Report

said it will eliminate 240 positions. Shares gained 28 cents, or 1.7%, to $16.53.

Johnson & Johnson

(JNJ) - Get Report

said late Thursday that it had voluntarily withdrawn 300 of its Cypher stents for quality-control reasons. Rival

Boston Scientific

(BSX) - Get Report

previously recalled a much larger number of its own stents due to manufacturing problems. J&J shares increased 73 cents, or 1.2%, to $62.70, while Boston Scientific lost 36 cents, or 1.1%, to $33.14.

BB&T

(BBT) - Get Report

said its net income for the fourth quarter was $416.9 million, or 75 cents a share, compared with $305 million, or 55 cents a share, a 37% increase from a year ago. The Thomson First Call estimate expected the bank to earn 76 cents a share. Shares closed down 44 cents, or 1.1%, to $39.73.

Applied Industrial Technologies

(AIT) - Get Report

said its second-quarter income rose 94% to $9.9 million, or 33 cents a share, from $5.1 million, or 17 cents a year, from one year ago. Sales for the second quarter increased 12.4% to $404.1 million. The Thomson First Call consensus was for earnings of 32 cents a share on sales of $399.3 million. Shares were sharply up $4.12, or 17.8%, to $27.30.

In broker calls, J.P. Morgan downgraded retailer

Kohl's

(KSS) - Get Report

to underweight from neutral, citing the company's decelerating growth rate. Kohl's still manage to gain 42 cents, or 0.9%, to close at $48.32.

CSFB upgraded shares of

Seagate Technology

(STX) - Get Report

to outperform from neutral, saying it believes the company is best positioned to gain from what the broker feels will be better-than-anticipated hard disk drive market trends for the first half of 2005. Seagate still fell 8 cents, or 0.4%, to $17.82.

Piper Jaffray upgraded Internet search engine

Ask Jeeves

(ASKJ)

to outperform from market perform, saying the company was gaining market share faster than others. Ask Jeeves gained $3.00, or 11.1%, to $30.04.

Overseas markets closed mostly higher. London's FTSE 100 was up 0.4% to 4820 while Germany's Xetra DAX was recently up 0.5% to 4232. In Asia, Japan's Nikkei gained 0.7% to 11,439, but Hong Kong's Hang Seng lost 0.6% to 13,495.