Stocks Turn Positive After Pullback

AP
Wednesday February 20, 1:29 pm ET
By Tim Paradis, AP Business Writer
Stocks Gain As Investors Set Aside Some Concerns About Rising Consumer Prices; Financials Gain


NEW YORK (AP) -- Wall Street recovered from an early loss and turned positive Wednesday as investors appeared to set aside some concerns about a rise in consumer prices and lackluster readings on home construction.

Stocks initially fell after an uptick in consumer prices and a record finish for oil prices Tuesday raised fresh worries that the Federal Reserve will have less room to lower interest rates in the coming months. Lowering rates can increase inflationary pressures. Investors are hoping for some insights on the Fed's thinking with the expected release Wednesday afternoon of minutes from the last meeting of the central bank's rate-setting committee.

The Fed lowered key interest rates by a half-point to 3 percent on Jan. 30, following an emergency three-quarter point cut the prior week.

While investors appeared to suppress some of their unease they still kept to mostly modest moves. The day's back-and-forth trading was typical of the sessions that Wall Street has endured since the second half of last year.

In early afternoon trading, the Dow Jones industrial average rose 52.83, or 0.43 percent, to 12,390.05.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 6.98, or 0.52 percent, to 1,355.76, and the Nasdaq composite index rose 13.29, or 0.58 percent, to 2,319.49.

David Kelly, chief market strategist for JPMorgan Funds, the mutual fund arm of JPMorgan Asset Management, said the economic figures released Wednesday weren't that bad but that Wall Street's preoccupation with credit worries have tainted how investors see the economy.

"I think the credit crisis is really generating so much noise that the normal signals from the economy aren't getting through," he said.

He said inflation remains contained because it hasn't shown signs of resulting in higher wages, a crucial factor in holding down some of employers' costs. He added that while the housing market remains distressed, its woes aren't more than expected. The worries about credit have made Wall Street react in unpredictable ways, he said.

"It is very psychological. Hour to hour, the market acts in an irrational fashion but in the long term it's determined by economic fundamentals."

Bond prices fell Wednesday. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.89 percent from 3.87 percent late Tuesday. The dollar was higher against most major currencies, while gold prices fell.

Light, sweet crude oil on the New York Mercantile Exchange fell 3 cents to $99.98 a barrel. Oil closed above $100 for the first time Tuesday, derailing a stock market rally and renewing Wall Street's inflation concerns.

Investors are concerned that inflation could accelerate at the same time the economy suffers under tough credit conditions. The phenomenon of slowing growth and surging prices is known as stagflation.

The housing data seemed to weigh on investors early in the session. The Commerce Department reported that housing starts rose by 0.8 percent in January, but only after plunging by a downwardly revised 14.8 percent in December. Building permits, a more forward-looking indicator, fell by 3 percent.

By the afternoon stocks turned positive after big names in the financial sector began to rebound and as technology issues like Hewlett-Packard Co. extended their advance.

Lehman Brothers Holdings Inc. rose $2.31, or 4.3 percent, to $55.88, while Morgan Stanley rose $1.99, or 4.8 percent, to $43.48 after hitting a fresh 52-week low earlier in the session.

Hewlett-Packard late Tuesday posted a 38 percent surge in fiscal first-quarter profit following an increase in computer sales. The company, one of the 30 stocks that comprise the Dow Jones industrial average, raised its profit forecast for the year. H-P shares rose $3.60, or 8.2 percent, to $47.55.

In other corporate news, the Financial Times reported that KKR Financial Holdings LLC, a listed affiliate of U.S. private equity group Kohlberg Kravis Roberts & Co., has delayed repayment of billions of dollars of commercial paper for the second time. Commercial paper are short-term bonds companies sell to quickly raise cash; demand for commercial paper began drying up last year, choking the credit markets.

KKR Financial fell 23 cents to $14.30.

Drug maker Pfizer Inc. said it would buy biopharmaceutical company Encysive Pharmaceuticals Inc. for about $195 million to strengthen its portfolio in products treating high blood pressure. Encysive surged $1.20, or 111 percent, to $2.28, while Pfizer slipped 2 cents to $22.35.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 533.8 million shares.

The Russell 2000 index of smaller companies rose 5.43, or 0.77 percent, to 707.77.

Overseas, Japan's Nikkei stock average closed down 3.25 percent. Britain's FTSE 100 closed down 1.23 percent, Germany's DAX index lost 1.47 percent, and France's CAC-40 fell 1.49 percent.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com