U.S. Stocks Rally On In-line Core Consumer Prices, Oil Drop

NEW YORK (MarketWatch) -- U.S. stock rose early on Friday, boosted by a rising dollar and a drop in crude oil prices, while investors looked past a big gain in consumer inflation, which excluding food and energy, came in line with expectations in May.

"The market breathed a sigh of relief, with the core number coming in line," said Peter Boockvar, equity strategist at Miller Tabak.

In addition, "the dollar continues to get better after a lot of bearishness," he said. "It's having its day right now.

The dollar continued this week's rally on Friday, receiving a boost as top finance ministers gather in Japan to discuss inflation worries.

Strength in the greenback tends to weigh on dollar-denominated commodities, such as crude oil and gold. In recent action, crude oil for July delivery fell 2% to $134.16 a barrel, helping to soothe concerns that surging energy prices are dampening U.S. consumption.

The Dow Jones Industrial Average rose 138 points, or 1%, to 12,281, with 27 of its 30 components rising.

Among Dow components, Coca Cola fell 4% after Hellenic Bottling , one of the beverage maker's top bottlers, warned over 2008 earnings, citing economic conditions in Italy, Ukraine and Romania, adverse weather in Central Europe, rising plastic prices and a strike in Greece.

The S&P 500 index gained 17.6 points, or 1.3%, to 1,357, while the Nasdaq Composite advanced 48 points, or 2%, to 2,451.

U.S. consumer prices rose 0.6%, the fastest pace in six months, in May, bolstered by surging energy prices, the Labor Department reported Friday.

But while the headline topped economists forecasts. The core CPI, which excludes food and energy prices, rose 0.2% as expected.

The data comes as inflation has overtaken weak growth as the top concern for financial markets and for some officials at the Federal Reserve.

Surging energy and food prices are seen both as a problem for inflation, boosting expectations that the Fed will hike interest rates later this year, and for growth, as consumers' wallets get pinched, according to Miller Tabak's Boockvar.

Separately, the University of Michigan said its preliminary consumer confidence gauge for June dipped to 56.7 from 59.7 in May.

U.S. stocks closed with gains on Thursday, helped by surprisingly strong retail sales, though leading indexes finished well off the day's highs as crude prices saw renewed strength and Yahoo announced that deal talks with Microsoft collapsed. The Dow industrials ended 57 points higher, the S&P 500 rose 4 points and the Nasdaq Composite rose 10 points.

Yahoo Inc. said late Thursday that it has struck a Web search agreement with Google Inc. that could be worth about $800 million in annual revenues.

Separately, RealtyTrac reported a 7% rise in monthly foreclosures, or a rise of 48% on an annual basis.

US Airways , which fell as much as 25% in Thursday's session, said after the close that it's cutting capacity on routes by up to 8% and shedding 1,700 employees.

Exxon Mobil said it plans to exit its U.S. retail gasoline business over the next few years, shedding the 820 service stations it still owns and operates and another 1,400 company-owned outlets operated by dealers of its branded fuels.

Pfizer may make a counter offer for Ranbaxy Laboratories, according to a report in India's Business Standard.

Underwriters Morgan Stanley and the Dresdner Kleinwort unit of Allianz appear less likely to need to hold onto the $8 billion stock that British lender HBOS is issuing as the Financial Services Authority issued rules designed to limit short selling of companies issuing discounted shares.

S&P SmallCap 600 constituents Cabot Oil & Gas Corp. and Massey Energy Co. will switch with S&P 500 components Brunswick Corp. and OfficeMax Inc. , respectively, Standard & Poor's said.

Chinese stocks lost ground for the eighth session in row, and the Hang Seng lost 1.9% in Hong Kong. The FTSE 100 was down 0.2% in London.


By Nick Godt