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Indexes rack up gains

Investors look on the bright side as news of an employment slowdown is taken as a sign that the Fed won't raise interest rates, driving stock markets higher. The Dow hits 11,577.

By ASSOCIATED PRESS
Published May 6, 2006

NEW YORK - Wall Street barreled higher Friday, sending the Dow Jones industrials up 138 points to a six-year high after a report of modest job growth bolstered hopes that the Federal Reserve will end its interest rate hikes. All three major indexes finished the week with gains.

Investors saw a slowdown in April employment growth as the latest sign of a softening economy, a reason for the Fed to stop raising interest rates. That countered worries over rising wages, which followed an upswing in employers' labor costs Thursday.

Jack Caffrey, equities strategist for JPMorgan Private Bank, said the market appeared to be focusing on recent positive data instead of considering the long-term consequences of why the Fed would stop boosting rates - because economic growth has slowed enough to contain inflation.

"People are taking the weaker job creation, the stability in the unemployment rate and the uptick in jobless claims and spinning that into a hope the Fed will move to the sideline sooner than later," Caffrey said. "It's almost a hope-for-relief rally instead of a 'the Fed is done, things are slowing down' mentality."

Falling oil prices helped stocks to their gains, although some think higher gasoline prices will pressure consumer spending and keep the economy from overheating.

The Dow rose 138.88, or 1.21 percent, to 11,577.74, its best showing since the Dow reached its record of 11,722.98 on Jan. 14, 2000. The Dow is 145.24 away from setting a record.

Broader stock indicators were higher. The Standard & Poor's 500 index gained 13.51, or 1.03 percent, to 1,325.76, its highest level since Feb. 15, 2001; the Nasdaq composite index advanced 18.67, or 0.8 percent, to 2,342.57. The S&P remains 13.2 percent away from its record high, while the Nasdaq is 53.6 percent lower than its 2000 record.

Advancing issues led decliners by a 3-to-1 margin on the New York Stock Exchange, where preliminary consolidated volume of 2.4-billion shares trailed the 2.46-billion shares traded Thursday.

The light trading volume was indicative of the market's ongoing uncertainty about interest rates and whether stocks can press past multiyear highs, said Christopher Piros, director of investment research for Prudential's Strategic Investment Research Group. Meanwhile, the jobs data left the inflation riddle unanswered, he said.

"We are at a point where inflation expectations are still rising, and the Fed is faced with a dilemma of whether they've done enough to cap inflation, but not enough to roll over the economy," Piros said. "I haven't seen real signs of a pickup in core inflation, although it's been ticking up slowly."

Evidence of a tapering economy in this week's data fed investors' optimism that the Fed will soon halt its rate increases, giving the major indexes a strong boost. For the week, the Dow was up 1.85 percent, the S&P climbed 1.16 percent and the Nasdaq rose 0.86 percent.

The Labor Department said U.S. employers added 138,000 jobs in April, far less than estimates of a 200,000 gain. Average hourly earnings jumped 0.5 percent, above the consensus target of 0.3 percent. The unemployment rate held steady at 4.7 percent.

Bonds recouped recent losses, with the yield on the 10-year Treasury note falling to 5.10 percent from 5.15 percent late Thursday. The U.S. dollar sank against the Japanese yen and was flat against European currencies, while gold prices topped $680 per ounce.

Crude futures edged up after a three-day decline spurred by government data showing improving supplies of gasoline and flat motor fuel demand. A barrel of light crude added 25 cents to settle at $70.19 on the New York Mercantile Exchange.

[Last modified May 6, 2006, 08:08:29]