The winning streak continued on Wall Street on Thursday, even if it ran out of steam a bit. Optimism over tame inflation and the sustained decline of oil prices from early-year stratospheric levels continued to fuel gains for the major indices.

The

Dow Jones Industrial Average

, which had lagged the advance for most of the session, also made a late-afternoon push after good news -- for a change -- about an automaker. Fitch Ratings, while downgrading

Ford's

(F) - Get Report

credit rating, spared it junk status for now.

The Dow rose 28.74 points, or 0.3%, to 10,493.19, overcoming declines from

Du Pont

(DD) - Get Report

, amid a new probe over Teflon, and

Alcoa

(AA) - Get Report

, which fell after announcing it would close a plant due to excess capacity.

The

S&P 500

added 5.52 points, or 0.5%, to 1191.08. The

Nasdaq Composite

continued to outperform, rising 11.93 points, or 0.6%, to 2042.58. The tech-heavy index was indirectly supported by a share buyback by

Motorola

(MOT)

.

Volume was average, with 1.4 billion shares traded on the

TheStreet Recommends

NYSE

, where advancers beat decliners 10 to 6; 1.7 billion shares traded on the Nasdaq, where gainers topped losers by 8 to 6.

The broader market remained supported by a virtuous cycle of tame inflation news and declining oil prices. On Wednesday, the April consumer price index eased fears over inflation. And so on Thursday, equity traders took a mixed batch of economic data as confirming the view that the

Federal Reserve

is under no pressure to hike rates more aggressively.

On the bullish side, weekly jobless claims fell by 20,000 to 321,000, keeping claims at a four-week low and well below forecasts of 330,000. On the weak side, the Conference Board's index of leading economic indicators fell 0.2% in April, the fourth straight month of declines, and March's drop was revised down to 0.6%. Also, the Philadelphia Fed said its index of regional economic activity fell to a 23-month low of 7.3 in May from 25.3 in April, and well short of forecasts that the index would stand at 17.3.

The Philadelphia Fed survey follows a negative reading from New York's Empire State index Monday. The two surveys usually forecast fairly well the national monthly manufacturing survey by the Institute for Supply Management.

Given the inflation relief going through Wall Street after the CPI, the Philly Fed survey was seen as boosting the probability that the Fed can pause in its tightening schedule sometimes before year-end. Still, expectations that the Fed will keep nudging the fed funds rates toward 4% by year-end remain firmly in place.

A month ago, the data would have confirmed the view that the economy was going through a soft patch -- or worse. But since then, strong April employment and retail sales, together with a narrowing trade deficit in March, have bolstered economists' expectations that growth remains on track. Crude oil and gasoline prices, blamed for slowing growth in the first quarter, also have declined steadily in recent weeks. On Thursday, the price of crude continued to slide, falling below $47 a barrel for the first time in three months, to close at $46.92 in Nymex trading.

The April CPI, at least for the time being, is allowing investors to bask in the glow of the ideal scenario of the so-called goldilocks economy, of a strong economy without inflation.

The Pass Along Problem

As the first-quarter earnings season draws to a close, the question in everyone's minds is what will happen to profits going forward. And one sticky problem remains the inability of businesses to pass along still-high energy prices and other rising costs on to consumers, according to Merrill Lynch senior economist Sheryl King.

Pricing power seems more evident at the bottom of the manufacturing chain, as was evident with Alcoa's earnings and outlook, yet it seems to get lost somewhere up the ladder on the way to the consumer, says King. Some industries also may have been able to pass along higher prices but were unable to maintain them. For instance, lodging costs rose sharply in the March consumer price index but fell back in April.

Meanwhile, it is tempting to compare a larger-than-expected rise in the April producer price index, as reported Tuesday, with the tame April CPI as further evidence that higher energy and commodity prices got stuck at the production level.

"The numbers don't go hand in hand on a month-to-month basis," says King. "But for the overall trend, it's certainly the case. It has been very difficult for producers to pass the costs over to consumers in any lasting sort of way."

And it seems that the trend is not specific to any particular industry and is pretty widespread, which does not bode well for second-quarter earnings or profit margins, she says.

The question bears asking even if commodity prices have been falling because of their lagging impact on production costs. A firmer dollar -- the greenback resumed its recent rally on Thursday -- may put downward pressure on commodity prices, but as signals about U.S. and global economic growth continue to gyrate, nothing really precludes the possibility that commodity prices won't make a comeback.

Just this week, there was a series of strong economic indications -- from the likes of China, Japan, and Germany -- that could bolster energy prices in the short and medium term, notes Wachovia economist Jason Schenker. Japan's latest GDP figures showed growth of 5.3%, the strongest in more than a year. Ditto in Germany. And Chinese oil imports surged by 22.5% in April.

These factors should continue to support energy prices against in spite of high U.S. inventories and higher production levels from OPEC, Schenker says.

To view Aaron Task's video take on today's market, click here

.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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