U.S. Stocks To Jump Higher After Benign CPI Report

NEW YORK (MarketWatch) -- U.S. stocks should pop higher at Friday's opening, as investors applaud a new report showing contained core inflation at the consumer level, and take in a stream of other new economic reports.

"People are happy that core inflation came in better than expected," said Peter Cardillo, chief market economist at Avalon Partners. "It seems that the hike in food and energy prices was offset by the deterioration in the housing market."

"We should get a nice jolt higher at the opening, but options expirations today should make for some volatility," he said.

The futures contract for the Dow Jones Industrial Average last was 72 points higher at 13,760.

Futures contracts for the S&P 500 and the Nasdaq 100 were 9 points higher at 1,548.50 and up 13.2 points at 1,964.5.

Stocks rallied on Thursday and Wednesday. The Dow industrials have climbed over 258 points over the last two sessions, buoyed by a stabilizing of bond yields. On Thursday, the Dow Jones Industrial Average rose 71 points, the S&P 500 rose 7.3 points and the Nasdaq Composite advanced 17.1 points.

The rally has taken place despite the fact that the yield on the 10-year Treasury note has been hovering around the 5.25% level of the fed funds rate for the past week. Confidence in the economy was outweighed yield concerns this week.

The Labor Department reported that higher energy prices drove the consumer price index last month up by 0.7%, the largest increase since Hurricane Katrina and the second largest in 16 years.

Investors focused on the core rate of inflation -- which excludes food and energy costs -- rose just 0.1%. The 0.7% gain on the headline CPI was just as expected by economists. But the 0.1% increase was less than the 0.2% anticipated by economists surveyed by MarketWatch.

The Federal Reserve Bank of New York said manufacturing activity in the region expanded sharply in June. Its manufacturing index rose to 25.8 in June, the highest level in a year, from 8.0 in May.

There was only muted reaction to news that, in the first quarter, the current account deficit rose to $192.6 billion.

Stocks on the move

Shares of Intel Corp. last were 2.3% at $23.75. The stock was upgraded to buy from neutral at Goldman Sachs, which said the company's rival Advanced Micro Devices Inc. likely move to an outsourced business model will create significant benefits for Intel.

There is a press report that Nymex Holdings , which owns the New York Mercantile Exchange, is exploring a sale to NYSE Euronext , Deutsche Boerse Ag., or Chicago Mercantile Exchange Holdings.

Home Depot has received two separate $10 billion offers for its supply unit. A news report said Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice Inc. make up one group, and the other includes Thomas H. Lee Partners LP and CCMP Capital Advisors LLC. Final bids are due today.

Babcock & Brown is leading an investment group that agreed to buy Coinmach Service Corp. for $1.33 billion, including Coinmach's debt. The investors are paying $13.55 per Class A share, a 15.7% premium to Thursday's close.

The Federal Trade Commission is expanding its probe into proposed mergers in the internet advertising space. The agency will review Microsoft Corp.'s proposed $6 billion acquisition of aQuantive .

Other markets

Treasurys turned higher, pushing yields lower, after the news of benign core consumer prices. The bond market abhors inflation because it eats into the value of fixed-income instruments.

The 10-year benchmark note was up 8/32 at 94 22/32 with a yield of 5.192%.

The dollar was higher against the yen, trading up 0.4% at 123.43 yen, after the Bank of Japan overnight left rates unchanged. The euro rose 0.07% to $1.3332.

Gold futures were volatile in the early going. The August futures contract last was up $1.20 at $657.10 aounce. The front month crude contract last was unchanged at $67.65 an ounce.

By Leslie Wines