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Wall Street Extends Rally

A big airline merger is proposed, and the Fed is still not ruling out the risks of inflation.

Updated from 4:15 p.m. EST

Stocks closed higher again Wednesday as traders absorbed the prospects of consolidation in the airline industry and weighed fairly benign statements from the latest

Federal Reserve



Dow Jones Industrial Average

finished at a new record, gaining 33.70 points, or 0.28%, at 12,251.71. The

S&P 500

neared a six-year high, advancing 3.35 points, or 0.24%, to 1396.57, and the

Nasdaq Composite

rose 12.09 points, or 0.5%, to 2442.75.

On the Dow, components


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were higher by 2% and 1.8%, respectively. Meanwhile,


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sank 2.2%.

"The market rallied up into the news today," said Phillip Roth, chief technical analyst with Miller Tabak. "Until there's some genuine selling pressure, I wouldn't want to bet against the trend."

About 2.92 billion shares changed hands on the

New York Stock Exchange

. Advancers beat decliners by a 5-to-3 margin. Volume on the Nasdaq was roughly 2.14 billion shares, with winners outpacing losers 3 to 2.

The major indices were little changed by the release of the minutes of the Fed's two-session meeting on Oct. 24 and Oct. 25. The text suggested that participants at the meeting felt that more interest rate hikes could be needed in the future.

At the gathering, policymakers left the fed funds target rate, the rate banks use to charge each other interest for overnight loans, at 5.25%. That was the third consecutive time the Fed had met without increasing rates.

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The minutes indicated that members of the

Federal Open Market Committee

"judged that the downside risks to economic activity had diminished a little, and likewise, some members felt that the upside risks to inflation had declined, albeit only slightly."

Several bankers noted that the slowing in core inflation "helped to allay their fears of a further sustained increase in inflation." The text said "all participants emphasized that the risks around the desired downward path to inflation remained to the upside."

Again, there was heavy focus on developments in the housing market, with cautious tones about slowing home sales and the cancellation of contracts. "The contraction in home construction remained a significant drag on economic activity, and steep reductions in motor vehicle assemblies further weighed on growth in the third quarter," the minutes read.

Roth said that the Fed's message within the minutes was cryptically negative, but he still believes the market's upward trend will continue.

"Reading between the lines, the Fed is more concerned about inflation than an economic slowdown, which is a bearish story for bonds," Roth said. "As long as long rates remain low, the stock market will hang in there."

The benchmark 10-year Treasury note fell 12/32 in price to yield 4.68%. The dollar was mixed against the world's other major currencies. Gold futures were down by $1.50 to finish the session at $623.80.

Oil prices were higher after the Energy Department's weekly inventory report showed large declines in both gasoline and distillate inventories. Crude stocks rose by 1.3 million barrels last week, gasoline stores fell by 3.7 million barrels, and distillate inventories tumbled by 3.6 million barrels. Crude futures rose 48 cents to close at $58.76 a barrel.

The day's biggest corporate news came from the airline sector, where

US Airways


has made an $8 billion offer to buy

Delta Air Lines


. If it's completed, the merger would combine a big low-fare carrier with one of the remaining legacy carriers.

Some analysts and industry executives have been speculating on the possibility of consolidation for some time, and the proposal for the bankrupt Atlanta-based carrier could set other deals in motion. US Airways itself is made up of the formerly bankrupt airline of the same name and the old America West.

Following the news, the Amex Airline Index jumped 5.2%. Among other individual names,

AirTran Holdings


surged 15.9%, and

Continental Airlines

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climbed 12.3%.

JetBlue Airways

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ended up 7.4%, also boosted by a Bear Stearns upgrade.

In other sector action, transportation stocks were big winners. The Nasdaq Transportation Index was higher by 1.5%, and the Dow Jones Transportation Average rose 1.4%. Utility stocks were among the biggest decliners, with the Philadelphia Utility Index losing 0.5%.

On the earnings front,



got past analysts' earnings and revenue estimates for the fourth quarter, but its profit guidance for the first quarter was a little light. Shares of Tyco eased by 4 cents, or 0.1%, to close at $29.89.

Away from equities, the New York Fed said its Empire State Index unexpectedly rose to a reading of 26.7 in November from a revised 22.9 in October. The index has risen three consecutive times and is at its highest level since June. Economists expected a reading of 15.4.

"Usually, the trend in the Empire State index and the

Institute of Supply Management Index is broadly similar, but the gap between them is now enormous," said Ian Shepherdson, chief economist with High Frequency Economics. "The headline Empire State is very volatile but the subindexes are very strong in this report, too."

European markets were moving higher. London's FTSE 100 was up 0.7% to 6230, and Frankfurt's Xetra DAX was adding 0.7% to 6431. Asia's markets were mixed. The Nikkei dipped 0.3% at 16,243, and the Hang Seng jumped 1.1% to 19,093.

On Thursday, earnings releases are scheduled for


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