Stocks Roar Ahead as Bonds Cheer Lack of Inflation

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Thank goodness for tedium.

It was the fuddy-duddy bond market that fueled Tuesday's roaring stock market. Bonds shot skyward this morning after the

Consumer Price Index

showed costs rising at a slower-than-expected pace. The CPI rose 0.2%, less than the 0.3% most economists had forecast. News of no inflation in Eden pushed the benchmark 30-year bond 2 1/4 points higher, guiding the yield to a six-week low of 6.4%.

Those lower interest rates, which improve the expected value of future earnings to investors, powered a stunning rise in the

Dow Jones Industrial Average

. The venerated measure made its fourth biggest single-day point rise, jumping 174.78, or 2.3%, to 7895.92. The broader market wasn't left out of the gooey good tidings. The

S&P 500

was up 25.87, or 2.8%, to 945.64.

"Good inflation numbers have called the tune on the tape," says Alan Ackerman, market strategist at

Fahnestock

. "This is a market with plenty of bounce."

The good news (so good that

CNBC

pulled out its "Stocks Surge" bug) was made even better as the market confirmed what many pundits had been noodling over the past week -- small caps are now part of this spectacular bull market. The

Russell 2000

, which measures the progress of Corporate America Jr., surged 5.01, or 1.1%, to 445.18.

"Many of the smaller companies are beginning to benefit from the economic scenario we're living through," says Ackerman.

Most impressive: Stocks nailed by yesterday's

Microsoft

(MSFT) - Get Report

disaster posted pleasant bounces. Microsoft was up 5 13/16, or 4.5%, to 136 3/8; computer-maker

Dell

(DELL) - Get Report

jumped 4 7/8, or 5.6%, to 92 3/8; chipmaker

Intel

(INTC) - Get Report

rose 3 13/16, or 4.1% to 95 13/16.

Compaq

(CPQ)

rallied 5 3/16, or 8.1%, to 69 1/2 after

Lehman Brothers

upgraded the computer maker to outperform from neutral.

In the "Thanks for Nothing" Department:

Apple Computer

named Steve Jobs as interim chairman of the company he helped found. The news boosted the beleaguered computer maker 7/16, or 2%, to 21 15/16.

IBM

(IBM) - Get Report

rose 3 3/8, or 3.5%, to 99 5/8; while

Oracle

(ORCL) - Get Report

, which reported earnings after the bell, jumped 1 1/2 or 4%, to 39 9/16.

The networkers finally lifted themselves up from recent woes amid speculation maligned

Ascend

(ASND) - Get Report

might

not

preannounce poor third-quarter profits when its CEO speaks at a conference in Boston tonight. Ascend rose 1 1/8, or 3.3%, to 33 11/16;

Cisco

(CSCO) - Get Report

jumped 4 7/8, or 7%, to 74 1/2; and

Bay Networks

added 2 11/16, or 6.3%, 38 9/16.

Banking shares, always interest-rate sensitive, also turned in a solid showing.

Citicorp

(CCI) - Get Report

rose 3 15/16, or 3.1%, to 131 7/16;

Chase Manhattan

(CMB)

leapt 3 1/16, or 2.7%, to 115 9/16;

Wells Fargo

(WFC) - Get Report

, up 4 3/8, or 1.7%, to 261 3/4;

BankAmerica

(BAC) - Get Report

, up 2 1/16, or 2.9%, to 74 5/16; and

Fleet

(FLT) - Get Report

, up 3 1/4, or 4.8%, to 70 3/4%.

Corning

(GLW) - Get Report

jumped 1 7/8, or 4.6%, 42 7/8 after

Merrill Lynch

upgraded the industrial components maker to near- and long-term buy and placed the company on its focus list. Merrill's John Roberts gave the company a 12-month target of $65.

Nextel

(NXTL)

rose 1 1/8, or 4.1%, to 28 11/16 after

BT Alex. Brown

started coverage of the wireless phone company with a strong buy.

Federal Express

(FDX) - Get Report

, which announced it was one of the biggest beneficiaries of the

UPS

strike, jumped 4 1/2, or 6.3%, to 75 3/4 -- an all-time high. The company reported first-quarter earnings jumped to $1.22 per share versus 54 cents a share last year.

Eastman Kodak

(EK)

, discussed

ad nauseum

in the

Midday Musings, slid 2 7/8, or 4.8%, to 57 1/8 after it warned third quarter earnings would likely miss the mark because a strong dollar would erode the repatriated value of its overseas earnings.

In more warnings news,

Polaroid

(PRD)

cautioned that third-quarter earnings could get hit on the same foreign currency concerns. Third-quarter earnings, to be unveiled in October, will likely miss the 87 cents a share figure, forecast by

First Call

. Polaroid dropped 3 5/16, or 6%, to 52.

Biotech giant

Amgen

(AMGN) - Get Report

continued sliding. It fell 9/16, or 1.2%, to 46 15/16 after it agreed to pay $96 million, or 35 cents per share against third-quarter earnings, to settle a dispute with

Johnson & Johnson

(JNJ) - Get Report

over its red-blood-cell booster Epogen, used in dialysis.