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Stocks, bonds rally on tame CPI, dollar gains
Published in Saudi Press Agency on 15 - 12 - 2006


Blue-chip U.S. stocks climbed
to an all-time high and bonds rallied on Friday after economic
data reassured investors that the economy is still growing and
inflation is under control, according to Reuters.
At midday, the Dow Jones industrial average was up 47.87
points, or 0.38 percent, at 12,463.95. The Standard & Poor's
500 Index was up 4.54 points, or 0.32 percent, at 1,430.03. The
Nasdaq Composite Index was up 12.70 points, or 0.52 percent, at
2,466.55.
U.S. consumer prices were unchanged in November, even when
excluding volatile food and energy costs, the Labor Department
said.
Investors saw the unexpected calm in the Consumer Price
Index as evidence that the Federal Reserve, with less to fear
from inflation, could, if necessary, cut interest rates to spur
economic growth.
But recent gains in employment, retail sales and industrial
production in November have cast some doubt over whether an
interest-rate cut will be needed next year.
"People are starting to believe that the economy will have
a soft landing instead of sliding into a recession," said Mike
Binger, portfolio manager at Thrivent Financial in Minneapolis.
Stocks drew added strength from another round of robust
earnings reports, particularly from technology companies.
Shares of Adobe Systems Inc. gained 5.2 percent to $42.95 after
the design software maker late on Thursday reported higher
profits and a first-quarter outlook in line with Wall Street
forecasts.
Shares of Weyerhaeuser Co. advanced 3.9 percent to $72.25
on the New York Stock Exchange after Deutsche Bank upgraded the
forest products company's shares to a "buy" rating.
TREASURIES SNAP TWO-DAY SLIDE
U.S. Treasuries rallied, snapping a two-day decline, after
the surprisingly mild readings on consumer inflation led
players to unwind short positions, bets that bond prices would
fall, traders said.
"The CPI readings were good news and certainly worth buying
on," said John Canavan, analyst at Stone and McCarthy Research
Associates. "But more importantly, the data in the week prior
to the CPI report had been uniformly bearish for Treasuries so
traders were leaning in the wrong direction going into CPI and
had to cover shorts after the report."
Yields on benchmark 10-year notes, sensitive to inflation
expectations, eased to 4.55 percent from 4.60 percent on
Thursday. Two-year note yields, responsive to changing
perceptions of Fed policy, eased to 4.68 percent, from 4.74
percent on Thursday. Yields move inversely to prices.
Data suggesting a rebound in foreign demand for Treasuries
also lent support to the bond market rally.
DOLLAR RISES, PROFITS ON EURO RUN-UP POCKETED
The dollar rose as currency investors pocketed profits from
the euro's big run-up and reversed an initial dollar sell-off
after a tame reading of November inflation.
Traders said institutional investors were behind a euro
sell-off that drove the currency to a session low of $1.3078,
according to Reuters data.
"It seems some real money is selling the currencies, buying
dollars. It's nothing other than people booking profits. People
are taking money off the table that's been there for some
time," said John McCarthy, vice president of foreign exchange
at ING Capital Markets in New York.
Still, the dollar was only modestly higher against the yen
at 117.62 yen, down from a session high at 118.32 yen.
The euro had earlier erased all its losses against the
dollar but a bout of technical selling against the yen dragged
it down to $1.3144 against the dollar, virtually flat on the
day and down from a high of $1.3186.
Crude oil prices rose towards $63 a barrel after OPEC
agreed to cut supply for a second time in two months,
underscoring its determination to prop up prices.
U.S. gold futures, an inflation hedge, fell to a four-week
low. Benchmark February gold at the COMEX division of the New
York Mercantile Exchange was down $3.20 at $627.70 an ounce at


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