NEW YORK – Stocks rose Wednesday as rising concerns about inflation and unemployment were offset by a rise in energy and food companies, including Dow component McDonald's Corp. (MCD).
The Dow Jones industrial average (search) rose 44.26, or 0.42 percent, to 10,633.50. On Tuesday, the Dow rose 141.87, its best one-day gain since July 8. Broader stock indicators were slightly higher. The Standard & Poor's 500 index (search) rose 2.97, or 0.24 percent, to 1,236.36, and the Nasdaq composite index (search) rose 5.17, or 0.24 percent, to 2,172.03.
"It is an impressive showing for the market again," said Michael Metz, chief investment strategist at Oppenheimer & Co.
"Hurricane Katrina seems to be put into the background. You are going to see the economy get some stimulus from federal spending. Crude oil moved down today and that helps," he said.
Wall Street was encouraged when oil prices fell below $65 per barrel as more Gulf Coast production facilities resumed operations and traders saw that Katrina's damage to petroleum infrastructure was less than originally feared. A barrel of light crude settled at $64.25, down $1.59, on the New York Mercantile Exchange (search).
Industrial stocks, including diversified manufacturer 3M Co. (MMM), rose, but the market's gains were limited by a report showing lower labor productivity and rising wage costs, which renewed concerns about inflation and the outlook for interest rates.
Restaurant stocks rose following upgrades by several Wall Street analysts who said recent share declines in the sector due to investor jitters about Hurricane Katrina and the run-up in gasoline prices offered good buying opportunities.
McDonald's (MCD)climbed 3.2 percent to $33.70 after Bear Stearns upgraded its shares. The S&P's restaurants index was up 2.6 percent, its third straight day of gains. Bear Stearns analysts also upgraded the restaurant sector .
"Restaurant stocks were badly hit last week and they were entitled to bounce back. But frankly, I would not be in that space because it is most vulnerable to a cutback by lower-income consumers due to higher oil prices," Oppenheimer's Metz said.
Investors were disappointed after the Department of Labor (search) revised second quarter productivity growth down to a 1.8 percent annual rate instead of the 2.2 percent in a preliminary report. The department also reported an increase in labor costs to 2.5 percent from the 1.3 percent in its preliminary report.
Higher wages are one of the indicators of inflation the Federal Reserve will weigh as it considers its interest rate policy. Traders had hoped the Fed would end its year-plus march of short-term interest rate hikes after Hurricane Katrina and softer economic data released last week, but increased wages could signal a continuation of the rate hikes.
Traders also weighed the news that Katrina will reduce employment by 400,000 people in coming months, according to a Congressional Budget Office (search) assessment. The hurricane will also trim economic growth by as much as a full percentage point in the second half of this year, the CBO report said.
In a positive sign for the economy, the Federal Reserve's summary of economic conditions, known as the beige book, said business activity increased across the United States from mid-July through August, but it covered the period before Hurricane Katrina struck.
Industrial companies, which are considered benchmarks of the U.S. economy, rose on lower oil prices, with Dow component 3M rising 1.5 percent to $73.77 and heavy-equipment maker Caterpillar Inc. (CAT) climbing nearly 1 percent to $59.07.
Another Dow component, Pfizer Inc. (PFE), rose 1.6 percent to $26.30 amid anticipation that a
Food and Drug Administration panel meeting on Thursday could give the drug maker's inhaled insulin treatment, called Exubera, a favorable recommendation, an analyst said.
Apple Computer Inc. (AAPL) unveiled a cell phone that works like an iPod music player and said that it would introduce a new iPod digital music player called the nano. Apple, which was up earlier, ended down 12 cents at $48.68 after new product announcements.
Altera Corp. (ALTR), a maker of programmable microchips was among the biggest decliners on Nasdaq, sinking almost 7.7 percent to $20.11 after cutting its profit margin forecast.
Kerr-McGee Corp. (KMG) shares rose $1.37 to $90.27 after it said its deepwater oil facilities in the central and western gulf are producing at pre-hurricane levels. Inspections and repair of minor damage to the eastern gulf shelf operations still shut continues, officials said. Starting up remaining production will depend on reopening onshore terminals, gas processing facilities and pipelines.
Delta Air Lines Inc. (DAL) was unchanged at $1.12 after it said it is reducing capacity at its Cincinnati hub by 26 percent while boosting international service and making other changes in an effort to become more efficient. Delta, the nation's third-largest carrier, is fighting to avoid bankruptcy.
Shares in Albertson's Inc.(ABS), the nation's second-largest supermarket chain, fell 27 cents to $23.13 after it said its second-quarter earnings edged up 3 percent from last year, missing Wall Street's expectations. The company, which last week said it was considering putting itself up for sale, reaffirmed guidance for the full year that was in line with analyst targets.
On the NYSE, about 1.49 billion shares were traded, above the 1.46 billion daily average for last year and on Nasdaq 1.49 billion shares changed hands, below the 1.81 billion daily average.
Advancers slightly outpaced decliners on both the NYSE and Nasdaq.
The Russell 2000 index of smaller companies rose 2.84, or 0.42 percent, to 677.32.
Overseas, Japan's Nikkei stock average rose 0.06 percent. Britain's FTSE 100 rose 0.13 percent, Germany's DAX index rose 0.40 percent, and France's CAC-40 rose 0.30 percent.
Reuters and the Associated Press contributed to this report.