Optimism Pushes Dow Past 7,400

Next stop, 7,500.

The Dow Jones industrial average shot above 7,400 for the first time on Friday as investors gave an optimistic read to a report that flashed clearly contradictory signals on inflation.

The Dow surged 130.49 to 7,435.78, giving the blue-chip barometer a gain of 104.74 for the week and easily beating May 27’s record close at 7,383.41. The Dow - up nearly 1,000 points, or more than 15 percent, for the year - first broke above 6,000 in October and 7,000 in February.

Broader indicators also soared to record highs on Friday, although blue-chip issues drew most of the attention, outperforming smaller-company shares for the first time in many sessions.

Stocks started the day only modestly higher, but took off before midday as bonds rallied back from a wary response to Friday morning’s anxiously awaited report on last month’s payroll and wage levels, two leading forces behind inflation.

The Labor Department report revealed that the nation’s unemployment rate, already the lowest in a generation, fell further in May to 4.8 percent, intensifying a labor shortage that could force employers to raise wages - and prices - as they try to keep up with demand. Despite those pressures, however, wages rose only modestly in May, the report showed.

The Federal Reserve, which moved to cool consumer demand by raising a key lending rate in March, has repeatedly pointed to wages and other employment costs as a top concern. Fed officials took no action when they gathered again last month, but could boost rates again when they meet in early July.

“I don’t think this report will give the Fed a mandate to change (monetary) policy or not to change policy,” said Arnold Kaufman, a market analyst at Standard & Poor’s. “The jury is still out on whether the Fed will raise rates.”

As bonds rose Friday, the yield on 30-year Treasury bonds, which moves in the opposite direction from prices, fell to 6.78 percent, the lowest level since late February. Rapid inflation can make fixed-income investments such as bonds less enticing, forcing down prices to improve the yield.

Also bolstering the bond market Friday, analysts said, was an upbeat assessment of the economy by Treasury Secretary Robert Rubin and speculation that foreign demand for U.S. investments may rise if this week’s Socialist victory in France derails the European efforts to trim deficits en route to a unified currency.

Advancing issues outnumbered decliners by a 12-to-5 margin on the New York Stock Exchange, where volume totaled 488.40 million shares as of 4 p.m., up from 452.62 million in the previous session.

The Standard & Poor’s 500 list rose 14.58 to 858.01, and the NYSE composite index rose 6.49 to 448.13, new highs for both measures.

The Nasdaq composite index rose 14.79 to 1,404.84, about five points shy of a record.

Overseas, Tokyo’s Nikkei stock average edged lower, Frankfurt’s DAX index rose 0.6 percent and London’s FT-SE 100 rose 1.5 percent.