STOCKS : Dow Jumps 35.33 After Good Economic News

Stocks strengthened Friday after government reports offered more evidence that the economy is coming out of the recession and that inflation is under control.

The Dow Jones industrial average jumped 35.33 points, or 1.2%, to 3,000.45. For the week, the Dow gained 23.71 points.

As has been the case recently, the 30-stock Dow outperformed most broader indexes Friday. The New York Stock Exchange composite index recorded a 1.1% gain; the NASDAQ composite of smaller stocks rose 0.8%.

Overall on the NYSE, advancing issues outnumbered declines by about two to one in nationwide trading, with 1,038 up, 530 down and 453 unchanged.

Volume was an active 167.53 million shares, against 144.87 million in the previous session.

The market rallied early in the session after the Labor Department released its consumer price index, which showed a 0.3% gain in May. The report allayed concerns that inflation would increase rapidly and drag down the economy’s emerging recovery.

“The CPI should produce conclusive evidence that inflation is not flaring up and that interest rates are going to stabilize in the near term,” said Irwin Kellner, chief economist for Manufacturers Hanover Trust.

And stable interest rates, Kellner noted, “are good for the stock market.”

Also on Friday, the government reported that industrial production rose 0.5% in May.

Market analysts have worried that rising inflation would slow the economy’s return to growth from the almost 1-year-old recession. That anxiety was supported by a government report Thursday that producer prices--wholesale inflation--shot up 0.6% in May, the biggest gain in seven months.

Economists later dismissed the report, saying the increases were concentrated in tobacco, gasoline and civilian aircraft prices. Also on Thursday, the Labor Department reported another decline in applications for unemployment insurance claims--another sign of the recession’s end.

“There was pretty good news yesterday (Thursday), and the stock market didn’t do much with it,” said Alan Levenson, director of U.S. financial services for the Pennsylvania-based WEFA Group. But on Friday, he said, “there’s a sigh of relief that there is a good CPI number.”

Among the market highlights:

* Cyclical stocks, or those that benefit in times of economic expansion, resumed their rally. GM jumped 2 1/8 to 44 1/4, International Paper rose 1 3/4 to 71 1/4, 3M Co. gained 2 1/2 to 96, Kimberly Clark advanced 1 7/8 to 96, Ford climbed 1 3/4 to 36 7/8, and Cummins added 1 7/8 to 42 5/8.

* Retailers rallied on economic hopes. Kmart gained 7/8 to 47 1/2, Home Depot rose 2 1/4 to 68 1/4, Price Co. climbed 1 3/8 to 53 3/4, Costco added 2 1/4 to 41 1/4, and Toys R Us rose 1 to 29 3/8.

* Drug stocks regained recently lost ground. Pfizer jumped 3 1/4 to 58 3/4, Schering-Plough surged 2 1/8 to 51 7/8, Merck advanced 2 1/2 to 118 1/4, and Amgen added 3 to 118. Other health-care gainers included health maintenance organization FHP International, up 1 3/4 to 23, and U.S. Healthcare, 2 1/8 higher at 34 1/8.

* Many tech stocks withered again, despite the better economic news. Investors are concerned that computer sales still are headed lower. Apple Computer sank 1 to 41 1/8, Novell fell 2 1/4 to 50, Advanced Logic Research lost 1/2 to 11 1/4, Micron Technology dropped 1 1/4 to 14, and Pyramid Technology slipped 1 3/8 to 17 1/2.

* Torrance-based International Technology was flat at 8 1/2. The Mathers Fund said it cut its stake in the waste-management firm to 6.2% from 12.3% by selling 1.95 million shares between April 26 and June 5. Mathers had been waging a campaign to encourage IT’s management to put the company up for sale.

* Van Nuys-based Pinkerton’s, the security firm, slumped 2 3/4 to 26 3/4 after losing 2 1/4 Thursday. Analysts cut earnings estimates for the company, citing pressure on profit margins from the acquisition of new contracts. A Smith Barney analyst now expects the firm to earn about 36 cents a share in the current quarter, flat with a year ago. The analyst cut his full-year estimate to $1.80 from $1.90.

* Arco Chemical was flat at 40 3/4. Grain processor Archer Daniels Midland said it took at 5% stake in the company for investment purposes.

In overseas trading, London’s Financial Times 100-share index inched up 7.7 points to 2,522.3.

In Frankfurt, Germany, the 30-share DAX index was up 7.20 points to 1,699.83.

In Tokyo, the Nikkei average rose 285.72 points to 25,093.89.

In Mexico City, the Bolsa index jumped 19.52 points to 1,098.66 but still finished down for the week--the first weekly loss after 15 consecutive gains.

In Sao Paulo, the Bovespa index of Brazilian stocks jumped 3% to close at a record 12,572, up 9% for the week.

Credit

Bond prices closed higher in response to the government’s favorable inflation report and because of a feeling that bargains were available.

The price of the Treasury’s 30-year bond rose 15/32 point, or $4.69 per $1,000 in face amount. The bond’s yield, which moves in the opposite direction from price, fell to 8.47% from 8.51% Thursday.

The government said the consumer price index rose just 0.3% in May. It attributed the small rise to moderation in food costs, which helped offset the first increase in energy prices in six months.

Elliott Platt, research director at Donaldson, Lufkin & Jenrette Securities Corp., said the CPI number shows “that while the recession is over, the economy continues to have moderate inflation.”

Low inflation generally allows interest rates to fall, because investors gain confidence that their returns won’t be eroded.

Kathleen Camilli, chief economist at Maria Ramirez Capital Consultants, said the inflation number and the industrial production figure came within predictions of market professionals, so she believed that they had little effect on bond prices.

She believes that bond prices rose because price drops in recent days made bonds attractive to some investors. “It was basically bargain hunting,” she said.

The federal funds rate, the interest on overnight loans between banks, fell to 5 5/8% from 5 11/16% Thursday.

Currency

The dollar settled mostly lower on world currency markets as traders cashed in recent gains.

The profit taking reflected traders’ reluctance to push the dollar higher out of fear that such a move would be met by coordinated central bank intervention.

Still, new economic data provided evidence that the recession is lifting, which should help support the dollar in the longer-term.

In New York, the dollar settled at 140.70 Japanese yen, down from 141.25 Thursday. The dollar fell to 1.794 German marks from 1.798.

Commodities

Wheat and soybean futures prices fell on the Chicago Board of Trade, reflecting favorable weather, while corn futures advanced amid nervousness about longer-range weather.

Forecasts for overnight rain in the Midwest followed by mild, dry weather weighed on the soybean and winter wheat market.

The forecasts indicate better prospects for the crops, which would mean more supply.

At the close, wheat futures were 3 cents to 5 1/4 cents lower, with the contract for delivery in July at $2.93 a bushel; corn was 1/2 cent to 2 cents higher, with July at $2.42 a bushel.

Meanwhile, oil prices were steady. The benchmark crude, West Texas intermediate, lost 4 cents to $19.67 a barrel.

Gold and silver prices fell. On the New York Comex, gold settled at $367.10 an ounce, down $3.10 from Thursday. Silver was $4.41 an ounce, off 10 cents.