NEW YORK (MarketWatch) -- U.S. stocks rallied on Thursday, as investors were heartened that a stronger-than-expected 0.9% rise in May producer prices failed to spook the bond market, keeping bond yields in check.
Excluding food and energy prices, the core producer price index rose 0.2% in May, more or less in line with Wall Street expectations for a 0.1% gain, said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
"The core number carries a lot more weight than the headline," which economists expected to rise 0.6%, he said. "This helped alleviate people's concerns about inflation."
The Dow Jones Industrial Average was up 73 points at 13,556, as 22 of its 30 components advanced, led by AT&T Inc. , General Motors Corp. , Alcoa Inc. , and Exxon Mobil Corp. .
Among Dow components, United Technologies Corp. rose 0.6% after the company raised its quarterly dividend by 21%, to 32 cents a share.
Away from blue chips, Wall Street banks Goldman Sachs and Bear Stearns were under pressure after their quarterly earnings fueled concern about their subprime mortgage businesses.
The S&P 500 index gained 7.8 points to 1,523, while the Nasdaq Composite rose 16.8 points to 2,599.
Trading volumes showed 760 million shares trading on the New York Stock Exchange and 1 billion trading on the Nasdaq stock market. Advancing issues topped decliners by 21 to 10 on the NYSE and by 17 to 10 on the Nasdaq.
By sector, oil , natural gas , and gold were leading the gains, while broker-dealers were among the few sectors losing ground.
The energy sector was buoyed by rallying energy prices in the wake of bullish inventory data.
Shares of homebuilders managed to shrug off news that a record number of U.S. homeowners entered the foreclosure process during the first quarter. Shares of KB Home , Hovnanian advanced, while Toll Brothers retreated.
Stocks have been under pressure amid rising bond yields since last week, as the yield of the benchmark 10-year Treasury bond topped 5%. Higher yields pressure stocks by offering a risk-free alternative to bonds, while lifting borrowing costs for consumers and businesses.
But the benchmark 10-year Treasury bond seemd to stabilize on Thursday.
After trading higher earlier, the bond was last down 3/32 at 94 17/32, while its yield, which moves inversely, rose to 5.215%.
Bonds earlier rose as bond yields in Europe also seemed to stabilize, in the wake of tame eurozone consumer prices.
News that U.S. producer prices rose a bigger-than-expected 0.9% in May failed to lift yields further.
Excluding food and energy, producer prices rose 0.2%. Economists surveyed by MarketWatch had been looking for smaller increases of 0.6% on the headline PPI and 0.1% for the core PPI.
Inflation normally erodes the value of fixed-income assets such as bonds, pressuring their price and lifting their yields. But U.S. yields have partly been rising to stay competitive with global yields, which have also risen.
Stocks also rallied on Wednesday, with the Dow industrials surging 187 points, as bond yields fell in the wake of an economic survey suggesting moderate growth and little inflation in the U.S.
"The biggest concerns in the market right now are higher interest rates and inflation," said art Hogan, chief market strategist at Jefferies & Co. "The PPI report could be broadly defined as being benign. This should be enough to keep market participants calm. They will look for confirmation tomorrow in the [consumer prices] report."
Stocks on the move
Bear Stearns last dropped 1.25%. In addition, to the concerns about its hedge fund exposure to mortgage-backed bonds, the bank released its second-quarter earnings report. The company's earnings fell below year-erlier levels due to a special charge.
Goldman Sachs fell 3.1%, after reporting quarterly earnings that beat expectations and exceeded the year-earlier result.
Colgate-Palmolive fell 0.9% after the company found counterfeit versions of Colgate toothpaste in four states.
Shares of Dow Jones , publisher of this report, fell 1.7% after UBS downgraded the stock to reduce from neutral, on the belief that another suitor won't emerge with a takeover offer that trumps the current $60-a-share bid from News Corp. .
The dollar rallied to a new four-and-a-half year peak against the yen but lost some ground against the euro.
Crude-oil futures gained $1.29 to $67.56 a barrel.
Gold futures advanced as crude oil prices rose. The August futures contract last was up $4.30 at $654.20 an ounce.
By Nick Godt