Sun, May 08, 2005 - Page 10 News List

Inflation fears take toll on Wall Street


Wall Street limped to a mixed finish on Friday as a surprisingly strong employment report raised fears that a surge in economic growth could spark inflation and prompt the Federal Reserve to aggressively raise interest rates. The major indexes finished the week higher.

The economy created 274,000 jobs in April, far more than the 175,000 Wall Street expected. With job gains for February and March revised upward, investors felt far more confident in the strength of the job market and economic growth.

However, with more money in the market and higher demand, the newly employed could force prices higher. That intensified Wall Street's inflation fears, which had receded somewhat as questions arose about the health of the economy in March and April.

"Today's report comes in, it surprises to the upside, and now the thought isn't about an economic soft patch. Now, we're thinking about interest rates, and that puts the Federal Reserve back in play," said Jay Suskind, head trader at Ryan Beck & Co.

"We've got oil higher, and we're fearful of the Fed dampening the party. So you got good news today, but it comes with drawbacks," Suksind said.

The Dow Jones industrial average rose 5.02, or 0.05 percent, to 10,345.40, after being up as much as 57 points in morning trading.

Broader stock indicators were narrowly mixed.

The Standard & Poor's 500 index was down 1.28, or 0.11 percent, at 1,171.35, and the NASDAQ composite index gained 5.55, or 0.28 percent, to 1,967.35.

While posting solid gains for the week, the market's uncertain reaction to good news -- a reassuring statement on interest rates from the Fed on Tuesday and the jobs report Friday -- kept stocks from staging a major rally. For the week, the Dow gained 1.5 percent, the S&P rose 1.25 percent and the NASDAQ picked up 2.38 percent.

Bond prices tumbled on Friday as investors grew more concerned about interest rates. The yield on the 10-year Treasury note rose to 4.26 percent from 4.16 percent late Thursday. The dollar was up against most major currencies, while gold prices fell.

Crude oil futures were volatile as speculators tried to figure out whether the jobs report would impact oil prices. A barrel of light crude settled at US$50.96, up US$0.13, on the New York Mercantile Exchange after vacillating through the session.

Energy prices weighed heavily on consumers last month, according to the latest AP-Ipsos consumer confidence index. The index came in at 78.2 in May, a sharp drop from April's 84.5 reading. It was the lowest index reading since October 2003.

Given higher-than-average oil prices and their uncertain effect on the economy, it would take an unusually deft Federal Reserve to manage interest rates so that inflation remains under control while ensuring steady economic growth.

Advancing issues barely outnumbered decliners on the New York Stock Exchange, where preliminary consolidated volume came to 1.73 billion shares, compared with 2.05 billion traded on Thursday.

The Russell 2000 index, which tracks smaller company stocks, closed the week 17.14, or 2.96 percent, higher at 596.52.

The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 US-based companies -- ended the week at 11,538.65, up 75.13 points from last week. A year ago the index was at 10,686.04.

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