Wall Street rallies as core inflation holds in check


Posted at Jun 13 2008 11:06 PM | Updated as of Jun 14 2008 07:06 AM

Agence France-Presse

NEW YORK - US shares rallied Friday as a report showing relatively tame "core" inflation eased jitters about runaway prices and investors mulled the new tie-up of Google and Yahoo on search advertising.

At 1447 GMT, the Dow Jones Industrial Average climbed 104.70 points (0.86 percent) to 12,246.28 and the Nasdaq composite leapt 40.11 points (1.67 percent) to 2,444.46.

The Standard & Poor's 500 index added 13.28 points (0.99 percent) to 1,353.15.

Ahead of the bell, the government said US consumer prices surged by a more-than-expected 0.6 percent in May. But core consumer price inflation, which excludes volatile food and energy costs, gained a modest 0.2 percent.

The report "could have been better but certainly wasn't as bad as feared given all of the inflation-fighting rhetoric heard recently," said Patrick O'Hare at Briefing.com.

Sentiment was also helped by a dip in oil prices and a firm dollar. July crude futures fell 1.25 dollars to 135.88 dollars a barrel in New York.

The euro fell to 1.5395 dollars from 1.5435 while the dollar advanced to 108.09 yen from 107.91.

The tech sector was leading the market's gains although Yahoo remained under pressure after the Internet group ruled out a sale of the company to Microsoft and announced a tie-up on search advertising with Google.

Google rallied 3.5 percent to 572.38 dollars and Microsoft advanced 4.0 percent to 29.37, while Yahoo shares slumped 5.5 percent to 22.22.

"Microsoft walking from Yahoo should allow Google to continue to extend its lead in online advertising in the near term, at the same time, fortify Yahoo's position as the clear number two player," said Ross Sandler at RBC Capital Markets, who expects the deal to generate 700 million dollars in cash flow for Google.

Elsewhere, ExxonMobil rose 0.75 percent to 87.71 dollars after a news report that the oil giant is preparing to exit the retail gasoline business and sell its 2,200 company-owned service stations.

Anheuser-Busch edged up 0.02 percent at 61.41 dollars amid a report the US brewing giant was mulling a deal with Mexico's Grupo Modelo to thwart a takeover bid from Belgian-Brazilian sector leader InBev.

Bonds were little moved. The yield on the 10-year US Treasury bond dipped to 4.201 percent from 4.205 percent Thursday and that on the 30-year bond increased to 4.766 percent against 4.764 percent. Bond yields and prices move in opposite directions.