Sun, Feb 20, 2005 - Page 10 News List

Rising wholesale prices drag down US bond market

WALL STREET The major US indexes paid the price after a Labor Department report showed wholesale prices rising at the fastest rate in the past six years


Rising wholesale prices and a jump in oil futures intensified US inflation fears on Friday, keeping stocks mixed and sending bond prices falling. Blue chips saw a late boost from the pharmaceutical sector, but the major indexes finished the week with a loss.

The US Labor Department's report, which showed wholesale prices rising at the fastest rate in six years, caused a selloff on the bond market and pressured stocks as well. While the Producer Price Index rose just 0.3 percent in January, the "core" PPI figure -- with volatile food and energy prices removed -- rose 0.8 percent, a hefty one-month rise that could signal higher consumer prices down the road.

"Inflation-sensitive stocks are doing well, but that's about it," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "There's not a lot of reason for people to make bets on too many other sectors."

But the Dow Jones industrials and large-cap stocks saw a boost in late trading as federal regulators approved the continued marketing of painkillers from Dow components Merck & Co and Pfizer Inc, saying that the benefits for patients outweighed increased risks of heart attack and strokes.

The Dow rose 30.96, or 0.29 percent, to 10,785.22. The Dow is once again up for the year to date -- by just 2.21, or 0.02 percent.

Broader stock indicators were narrowly mixed. The S&P was up 0.84, or 0.07 percent, at 1,201.59, while the tech-focused NASDAQ composite index lost 2.72, or 0.13 percent, at 2,058.62.

Inflation concerns kept the markets from substantially surpassing their highs from December this week, as US Federal Reserve Chairman Alan Greenspan, while giving lawmakers a bullish assessment of the economy, warned that higher prices could become an issue.

For the week, the Dow fell 0.1 percent, the S&P 500 was down 0.34 percent, and the NASDAQ dropped 0.87 percent.

On Friday, the US dollar got a small lift from the inflation data, shoring up modestly against the euro, the Japanese yen and the British pound, while gold prices slipped. The yield on the 10-year Treasury bond rose to 4.27 percent as inflation fears caused a selloff in long-term bonds.

Only energy, raw materials and the drug sector showed gains after a muddled trading session, and the latter climbed thanks to the Dow's pharmaceutical components.

Merck surged US$3.76, or 13.03 percent, to US$32.61 after a US Food and Drug Administration advisory panel voted narrowly to allow Merck to continue marketing the arthritis drug Vioxx in the US.

The Russell 2000 index of smaller companies was down 1.01, or 0.16 percent, at 630.13.

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