Wholesale Prices Drop 0.4 Percent

The government’s hot and cold economic reports are driving financial markets crazy by first fanning, and then easing, fears of inflation.

The latest - a drop last month in prices paid to farms, factories and other producers - cheered markets Friday, just a day after a plunge of 160 points in blue-chip stocks.

Friday’s partial recovery, sending the Dow Jones average of industrial stocks up 56.57 points to close at 6,935.46, came after the Labor Department said its Producer Price Index fell 0.4 percent in February.

The index measures the prices of finished goods before they reach retailers. February marked the sharpest decline since October 1994 and built on a 0.3 percent drop in January.

At the same time, production at the nation’s factories, mines and utilities rose 0.5 percent in February, the Federal Reserve said. Just at factories, production advanced a strong 0.8 percent. Industries operated at 83.3 percent of capacity, indicating plenty of room for production increases without inflationary bottlenecks.

A third report, from the Commerce Department, showed business inventories remained lean in January, a good sign for future production. Inventories rose just 0.1 percent, reversing a 0.1 percent decline in December.