Stocks rally on rate comment

Wall Street barreled higher Tuesday, with the Dow Jones industrials surging further into record territory after a Federal Reserve official indicated the Fed would maintain its policy of stable interest rates.

Investors who were heartened by an earlier report of slowing producer prices began buying in earnest after Federal Reserve Bank of St. Louis President William Poole described the Fed’s interest rate policy as “about right.”

Poole, who is acting as a voting member on the Fed’s policymaking Open Market Committee, had reassuring words for a market that has been counting on a steady rate policy for the near future.

Earlier, the Labor Department said inflation at the wholesale level as measured by the producer price index dropped by 1.6% last month, after a 1.3% slide in September.

Plunging energy prices were behind the declines, which gave Wall Street some relief from concerns that rising inflation might prompt the Fed to raise rates after three straight meetings where they were left unchanged.

“With the PPI down and with the Fed cautiously optimistic about the economy, not signaling any rate hikes, it confirmed what the market was hoping to hear,” said Jay Suskind, head trader at Ryan Beck & Co.

The Dow rose 86.13 points, or 0.7%, to close at 12,218.01, above the previous record close of 12,176.54 reached last Wednesday.

The blue chips also reached a new trading high of 12,228.01.

Broader stock indicators also closed sharply higher. The Standard & Poor’s 500 index rose 8.8 points, or 0.6%, to 1,393.22. It hit a trading high of 1,394.49; this was the first time the S&P; 500 surpassed 1,394 since November 2000.

The Nasdaq composite index rose 24.28 points, or 1%, to 2,430.66, a five-year high. Intel’s early rollout of its new quad-core processors helped boost the technology sector Tuesday. Intel, the world’s largest computer chip maker, rose 88 cents, or 4.2%, to $21.88.

Bond yields slipped on the inflation news, with the yield on the benchmark 10-year Treasury note falling to 4.57%, from 4.61% on Monday. The dollar was mixed against other major currencies, and gold prices slipped.

Crude oil futures fell 30 cents to settle at $58.28 a barrel on the New York Mercantile Exchange.

Before Poole’s comments, investors sifted through economic reports, which included a second straight monthly drop in retail sales during October.

The 0.2% decline reported by the Commerce Department reflected the 25% drop in crude oil prices since mid-July rather than a weakness in consumer spending. The drop in sales was also smaller than expected.

The market was initially unnerved by a disappointing earnings report from Home Depot, which raised concerns about the toll that slowing home sales is taking on other industries. Home Depot posted a 3.1% third-quarter profit drop on a sharp decline in same-store sales, those from stores open at least a year.

But stocks later turned higher, and Home Depot shares rebounded $1.56, or 4.3%, to close at $37.96.

“There’s a sense that the housing market has bottomed,” Suskind said.

In other market highlights:

* Shares of home builders rallied after one of the biggest builders, D.R. Horton, reported better-than-expected quarterly earnings. Profit was down 51% from a year earlier, but analysts had expected worse. The company’s shares soared $2.12 to $24.50, although they’re still down 31% this year.

Among other builders, KB Home jumped $2.78 to $47.56, Ryland surged $3.16 to $47.57 and Pulte was up $1.46 to $30.35.

* Google jumped $8.27 to $489.30, a record closing high, amid a broad rally in tech issues. The Internet search engine firm now is valued at $150 billion.

Also in the Internet sector, Amazon.com gained $1.52 to $41.51, and ValueClick rallied $1.03 to $22.53.

* In the tech sector, which has led the market in recent days, IBM jumped $1.22 to $93.29, Broadcom added $1.77 to $34.05 and Adobe Systems rose 42 cents to $40.51.

* On the downside, rail giant Norfolk Southern sank $2.78 to $49.90 after the company said sales might slow this quarter, citing “weakness in demand” for shipping in some industry sectors, such as autos.

* Wal-Mart Stores rose $1.34, or 2.9%, to $47.66, after reporting third-quarter earnings went up 11.5% despite weak growth in U.S. sales. The world’s largest discount retailer promised its most aggressive holiday discounts to boost year-end business.

Rival discounter Target rose $1.40, or 2.4%, to $59.16 after it beat analysts’ projections with an 11% rise in sales.

Dillard’s surged $6.38 to $35.59. Its 22% rise was the most in at least 26 years. The department store chain that operates mostly in the southern U.S. posted an unexpected third-quarter profit that beat analysts’ estimates.