Stocks surge on China currency news

Stocks vaulted higher for a second straight session Tuesday as investors welcomed the Treasury Department’s move to put pressure on the Chinese currency system and, perhaps, eventually reduce the U.S. trade deficit.

Investors reacted decisively after the Bush administration declared Tuesday afternoon that China may be using its monetary policies to unfairly affect trade. The Dow jumped 70 points higher in just 23 minutes, finishing with a two-day gain of 191, and the Nasdaq composite index climbed past the 2,000 mark for the first time in more than a month.

The market began the day lower after the Labor Department’s Producer Price Index showed higher-than-expected increases in wholesale prices. With the counterpart Consumer Price Index due before today’s session, analysts warned that Wall Street’s late rally could be short-lived.

“It’s encouraging to see these kind of gains two days in a row, and I guess I’m cautiously optimistic,” said Neil Massa, an equity trader at John Hancock Funds. “But all this can be erased tomorrow with one number.”

The Nasdaq gained 9.72, or 0.49 percent, to 2,004.15, its best close since April 12.

Other indicators also moved sharply higher. The Dow rose 79.59, or 0.78 percent, to 10,331.88, after rising 112.17 on Monday. And the Standard & Poor’s 500 index was up 8.11, or 0.7 percent, at 1,173.80.

The bond market also made gains, with the yield on the 10-year Treasury note falling to 4.12 percent from 4.13 percent late Monday. The dollar lost ground against other major currencies after strong gains in the past few sessions, and gold prices rose.

Crude oil futures rose modestly higher, though the Treasury’s stance on China helped Wall Street shrug off the increase. A barrel of light crude settled at $48.97, up 36 cents, on the New York Mercantile Exchange.

China’s yuan currency is pegged to the dollar in international trading, which has made China far more competitive than the United States due to its lower labor and materials costs. While not outright accusing China of currency manipulation, the Treasury Department said it may do so in the future unless the Chinese government switches to a flexible exchange system.

The Treasury Department’s announcement reversed a modestly down session on Wall Street. Investors’ inflation fears were renewed after the Labor Department’s Producer Price Index, which measures wholesale prices, rose 0.6 percent in May, more than the 0.4 percent economists expected. With volatile energy and food costs removed, so-called core PPI rose 0.3 percent, compared with the 0.2 percent expected on Wall Street.

While rising wholesale prices are seen as a possible precursor to inflation, analysts were encouraged that investors had reacted without the usual skittishness that marked trading over the past month.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.49 billion shares, compared with 1.46 billion traded on Monday.

The Russell 2000 index of smaller companies was up 3.56, or 0.6 percent, at 595.27.

Overseas, Japan’s Nikkei stock average tumbled 1.11 percent. In Europe, Britain’s FTSE 100 closed up 0.29 percent, France’s CAC-40 lost 0.12 percent for the session, and Germany’s DAX index fell 0.24 percent.