Wall Street passes key hurdles

Wall Street leaped over some key hurdles over the past week as fears receded about inflation and an economic slowdown, helping build a case for a positive finish for this year on the stock market.

The main US indexes rallied for a third straight week, with the Dow Jones Industrial Average of blue chips climbing 1.47 percent to end Friday at 10,686.04. The Standard and Poor's 500 broad-market index added 1.2 percent to 1,234.72 and the technology-heavy NASDAQ composite index tacked on 1.5 percent to 2,202.47.

The NASDAQ has now joined the S&P in positive territory for the year and the Dow is within striking distance of its starting point for the year of 10,783.01.

"The mood of the market remains positive as the year-end advance continues," said Al Goldman at AG Edwards, citing "the biggest three-week rally in a year."

"Lower oil prices are once again giving stocks a lift. Oil has declined five percent this week to a 16-week low," he said.

The retreat in oil prices -- with New York crude near US$57 a barrel after peaking at over US$70 -- has calmed those on Wall Street claiming inflation would get out of control and lead to a host of problems including higher interest rates and lower corporate profits.

"Retail gasoline prices are down more than 20 percent, and look likely to continue to slide this month," said Ethan Harris at Lehman Brothers, adding that this might induce the Fed to pause in its cycle of interest rate hikes.

"If prices continue to fall, or even merely stabilize, [the inflation] numbers could soften, encouraging the Fed to stop tightening in March," Harris said.

Also helping the stock market was an easing on tensions on the bond market -- reflecting reduced inflation fears and strong demand for Treasury securities that also supports the US dollar.

The yield on the 10-year US Treasury bond eased to 4.564 percent from 4.657 a week earlier while that on the 30-year bond fell to 4.476 percent from 4.852. Bond yields and prices move in opposite directions.

The stock market will get a better picture of inflation in the coming week with reports on producer and consumer prices. If they show prices in check, it could build the case for strong growth and tame inflation. The market will also get a picture of retail sales going into the key holiday season.

"The economy looks pretty solid," Stephen Auth at Federated Investments said.

"Witness the third quarter's surprisingly robust 3.8 percent growth in GDP. Meanwhile, many companies have very strong cash positions, enabling them to fund capital spending, share buy-backs and increased dividends," he said.

Auth said some of the fears that weighed on the market in recent weeks have dissipated, including worries about the economic jolt from Hurricane Katrina.

"Now, while the headlines haven't been particularly positive, they haven't screamed disaster, either," he said. "Meanwhile, gasoline pump prices have dropped back to where they were around Labor Day [September]."

Goldman said that last month's selloff helped bring stock prices to attractive levels, setting the stage for a strong rally at the end of the year, traditionally the strongest season for Wall Street.

"We have an unusual situation today in that both technical and fundamental market factors are positive -- we have a double-barreled shotgun loaded and positioned to 'gun' stocks higher into the new year," he said.