Stocks extend gains on mixed inflation data

Wall Street rallied for a second session Thursday as investors brushed aside mixed signals on inflation a day after the Federal Reserve said it was concerned about rising prices. The Dow Jones industrial average surged nearly 92 points and the Nasdaq composite index, battered during the market’s May slump, turned positive for the year.

While manufacturing activity slowed in May, high energy and materials costs drove a sharp uptick in prices paid and fueled fears that the Fed could continue lifting interest rates to contain inflation. But a downward revision to growth in first-quarter wage costs suggested prices were more subdued.

“The trend today looks like confusion to me,” said Scott Merritt, U.S. equities strategist for JPMorgan Asset Management. Although Friday’s job growth data from the Labor Department is expected to provide more clarity on the economy, Merritt said a benign report would do little to help the market’s uncertainty.

“The employment report will only have an impact if it’s significantly to the upside or downside,” he said. “Otherwise it will create more confusion — and that’s what we’re going to get until (the Fed’s June 28-29 meeting).”

Meanwhile, strong May sales boosted the retail sector and bolstered optimism about the consumer picture. Oil prices fell further on data showing increased domestic reserves and helped accelerate the market’s advance.

The Dow climbed 91.97, or 0.82 percent, to 11,260.28. On Wednesday, the Dow gained 74 points after dropping 184 points on Tuesday.

Broader stock indicators surged. The Standard & Poor’s 500 index gained 15.62, or 1.23 percent, to 1,285.71; the Nasdaq surged 40.98, or 1.88 percent, to 2,219.86, returning to positive territory for 2006.

Bonds recovered from Wednesday’s dive, with the yield on the 10-year Treasury note down to 5.1 percent from 5.13 percent late in the prior session. The U.S. dollar was flat against other major currencies; gold prices declined to about $635 an ounce.

Overseas stock markets recouped earlier losses driven by worries that rising U.S. interest rates will choke global demand. Britain’s FTSE 100 gained 0.45 percent, Germany’s DAX added 0.26 percent and France’s CAC-40 was higher by 0.35 percent.

Many on Wall Street were looking forward today’s report on monthly hiring, which is considered a primary indicator of economic conditions. But analysts say the market’s uneasiness was likely to persist until the Fed makes its next move at the end of June.

Advancing issues outpaced decliners by almost 4 to 1 on the New York Stock Exchange, where the volume of 2.49 billion shares trailed the 2.73 billion shares that changed hands Wednesday.

The Russell 2000 index of smaller companies gained 15.49, or 2.15 percent, to 736.50.