Investors welcomed a lower-than-expected drop in wholesale prices and sent stocks higher on Friday, ending a troubled week on Wall Street on a positive note. The major indexes nonetheless suffered a loss for the second straight week.
Wall Street had been hoping for a decline in the Producer Price Index (PPI), fearing that a rise in wholesale prices would prompt the Federal Reserve to be more aggressive in raising interest rates. The PPI fell 0.7 percent in December, much more than the 0.2 percent decline economists expected. It was the steepest decline in the PPI since April 2003.
The PPI report allowed investors to recover at least part of Thursday's losses and helped the dollar gain ground against most other currencies. Oil prices, however, continued to rise as investors hedged against the return of wintry weather to the Northeast. A barrel of light crude settled at US$48.38, up US$0.34, on the New York Mercantile Exchange.
"I think with the response to this you're seeing on the markets, it's telling us that high prices really aren't sustainable," said John Lynch, chief market analyst at Evergreen Investments.
"Even oil's not going to be inflationary, and with that, I think we can see slow, steady growth in the economy," Lynch said.
The Dow Jones industrial average rose 52.17, or 0.5 percent, to 10,558.00, making back nearly half the 111.95 it lost on Thursday.
Broader stock indicators saw moderate gains. The Standard & Poor's 500 index was up 7.07, or 0.6 percent, at 1,184.52, and the NASDAQ composite index climbed 17.35, or 0.84 percent, to 2,087.91.
The PPI report took pressure off stock prices, which have slumped for the second week in a row due to high energy prices and concerns over inflation. While Intel Corp and Apple Computer Inc both issued stellar earnings reports, the lingering worries on Wall Street prevented the good news from moving most stocks, even within the technology sector.
For the week, the Dow fell 0.43 percent, the S&P 500 was down 0.14 percent, and the NASDAQ lost 0.03 percent.
Investors entered the year with a caution that surprised many analysts, but they could regain confidence with good economic data and strong earnings reports in the week ahead.
"The economic numbers today were good, we're building off that, but really, it's all about earnings next week, especially guidance for the year," said Jay Suskind, head trader at Ryan Beck & Co. "The guidance we've seen so far has been a wash, so we'll be looking for evidence that companies believe the economy will keep going."
In particular, should the Consumer Price Index, due on Wednesday, follow the PPI with a lower-than-expected figure, the concern over prices and inflation would abate considerably, analysts said, and Wall Street could continue to expect the Fed to raise rates in regular, quarter percentage point increments.
Advancing issues outnumbered decliners by about 9 to 4 on the New York Stock Exchange, where preliminary consolidated volume came to 1.66 billion shares, compared with 1.9 billion on Thursday.
The Russell 2000 index of smaller companies was up 7.35, or 1.2 percent, at 617.48.