Stocks gain as economic data eases inflation worries

NEW YORK — Wall Street ended a turbulent week with a sharp gain today after government readings on inflation and a drop in oil prices eased worries about the effect of rising prices on consumers.

The advance lifted the Dow Jones industrial average 165.77, or 1.4 percent, to 12,307.35. Stocks rose moderately Thursday following a steep sell-off Wednesday and began today's session with steep losses for the week.

Microsoft, one of the 30 Dow stocks, rose 83 cents to close at $29.07. Boeing, also a Dow stock, gained $1 to $75.12.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 20.16, or 1.5 percent, to 1,360.03, and the Nasdaq composite index rose 50.15, or 2.1 percent, to 2,454.50.

Short-term Treasury prices rose after being pounded earlier this week on fears that the Federal Reserve would be forced to raise interest rates to combat inflation.

The readings that arrived today and gains in the dollar supported a notion that the Fed will be able to walk a middle line as it seeks to balance the well-being of a fragile economy and pressures from rising prices. Recent drops in the dollar had contributed to higher oil prices because a weaker dollar makes each barrel more expensive.

"The news today tells us that it's not getting worse," said Linda Duessel, equity market strategist at Federated Investors. She said that while investors aren't necessarily seeing improvement in areas like inflation, they appear relieved that prices aren't running out of control and forcing the Fed to hike rates and risk sending the economy into a downturn.

"I think market watchers are hoping and expecting that we don't need another rate cut," she said.

The government's report that prices are rising came as no surprise to investors or consumers alike. The Labor Department's consumer price index grew 0.6 percent last month, which was just above the 0.5 percent economists had expected. The core inflation reading, which excludes often volatile food and energy prices, edged up a more moderate 0.2 percent, as expected.

While overall inflation showed its biggest one-month gain since November, the fact that the run-up seems largely contained to food and energy appeared to give investors some solace. Price spikes in all areas could make it harder for some consumers to reach into their wallets for anything more than the basics. And a pullback in consumer spending, which accounts for more than two-thirds of U.S. economic activity, could derail investors' hopes of seeing an economic recovery later in the year.

Still, the rise in energy costs is leaving some consumers in a downcast mood. The Reuters/University of Michigan preliminary reading on consumer sentiment for June fell to 56.7 from 59.8 last month.

But the easing of some inflation concerns today appeared to bolster the case for the Fed to keep rates unchanged when it meets June 24-25 and to perhaps hold off on boosting rates for several meetings. But comments this week from Fed officials make clear that policymakers are mindful of rising prices and the taxing effect they can have on the economy.