Stocks Rise on Soothing Inflation News

Stock rose on Wednesday, rebounding from Tuesday's massive losses, as investors welcomed a tame report on January consumer prices, >better-than-expected corporate earningsand two merger deals.

The Dow Jones industrial average (search) closed up 62.59 points, or 0.59 percent, at 10,673.79. The Standard & Poor's 500 Index (search) was up 6.64 points, or 0.56 percent, at 1,190.80. The technology-laced Nasdaq Composite Index (search) was up 0.93 points, or 0.05 percent, at 2,031.25.

"We were heavily oversold yesterday on the oil news and we are getting a technical bounce a little bit. Oil is down today and it is definitely being helped by the fact that the dollar is up," said Tom Schrader, managing director, U.S. equity trading, Legg Mason Wood Walker.

Investors also said minutes from the last meeting of the Federal Open Market Committee (search) revealed little to suggest the Fed would increase the pace of future rate increases.

The blue-chip Dow and the broader Standard & Poor's 500 index got a boost from Procter & Gamble Co. (PG), which jumped 2.4 percent to $53.49, after UBS raised its rating to "buy" from "neutral," citing optimism about the consumer products maker's deal to buy Gillette Co.

The Nasdaq stayed just in positive territory as Apple Computer Inc. (AAPL) jumped 3.4 percent to $88.19 after it introduced new versions of its hugely popular digital music player, including an 'iPod mini' with a color screen.

"Judging by conversations with our clients, people were looking to re-engage," said Brian G. Belski, market strategist at Piper Jaffray. "If we'd had a stronger semblance of inflation, this thing could've really come uncoupled today."

The Labor Department (search) reported a tiny 0.1 percent rise in consumer prices during January as energy costs slid for a second straight month. The data, which suggests consumer inflation remains very much under control, was at odds with last week's report on wholesale prices.

Wall Street economists had expected a 0.2 percent rise in the CPI, both overall and excluding food and energy, but traders had been bracing for the possibility of larger gains after a report on Friday showed a big pickup in core producer prices, which raised concerns of more aggressive hikes in interest rates by the Fed.

"There was a lot of relief over the CPI figure — the fear was it was going to be higher and this would trigger a change in strategy by the Fed," said Michael Metz, chief investment strategist at Oppenheimer & Co.

The Federal Reserve concluded at its last meeting on Feb. 1-2 that interest rates likely remained too low to keep inflation stable and held open the possibility of altering the pace of future increases, minutes of the meeting issued on Wednesday showed.

On balance, the central bank's policy-setting Federal Open Market Committee felt its policy of pushing rates up would keep inflation in check but left no doubt it intended to keep on raising them.

The dollar, which tumbled Tuesday on rumors that South Korea planned to diversify its currency holdings away from the greenback, recovered somewhat after Seoul's central bank denied the report. Gold fell, as did oil prices, which skidded 25 cents to $51.17 per barrel on the New York Mercantile Exchange (search).

Pharmacy benefits manager Medco Health Solutions Inc. (MHS) was down 29 cents at $43.14 after saying it had agreed to buy Accredo Health Inc. (ACDO) , a distributor of specialty drugs and services, for about $2.2 billion in cash and stock. The deal would create the nation's largest specialty pharmacy business, Medco said. Accredo shares surged 39 percent, or $11.87, to $42.11.

Trucking company USF Corp. (USFC) jumped 13 percent, or $4.37, to $37.73, after The Wall Street Journal reported that Yellow Roadway Corp. (YELL) was in talks to acquire it in a deal possibly valued at more than $1 billion. Yellow shares added 4.7 percent, or $2.60, to $57.95.

Toll Brothers Inc. (TOL) rose 4 percent, or $3.21, to $84.25, as soaring demand for luxury homes boosted profits in the first quarter, prompting the company to raise delivery estimates for 2005. Its earnings blew past the estimates of analysts surveyed by Thomson First Call.

Lowe's Cos. (LOW) was up 37 cents at $57.90 after the nation's second largest home improvement chain reported a nearly 27 percent rise in fourth quarter earnings on an almost 18 percent increase in sales. The results beat Wall Street's expectations by a wide margin.

Chiquita Brands International Inc. (CQB) was up 5 cents at $22.05 after the banana grower announced plans to acquire Fresh Express, the nation's top seller of bagged salads, from Performance Food Group Co. for $855 million in cash. The announcement came a day after Chiquita reported its profit more than tripled in the fourth quarter.

Trading in stocks was active, with 1.5 billion shares changing hands on the New York Stock Exchange, just above the 1.46 billion daily average for last year. About 1.87 billion shares were traded on Nasdaq, just above the 1.81 billion daily average last year.

On the NYSE, advancing stocks outnumbered declining stocks by 2-to-1. The number of rising stocks was about equal to declining stocks on the Nasdaq.

The Russell 2000 index, which tracks smaller company stocks, was up 2.61, or 0.42 percent, at 620.54.

Overseas, Japan's Nikkei stock average shed 0.84 percent. In Europe, France's CAC-40 lost 0.63 percent, Britain's FTSE 100 slid 0.88 percent and Germany's DAX index dipped 0.29 percent.

Reuters and the Associated Press contributed to this report.