NEW YORK – Wall Street closed out an uneasy May with a solid advance Wednesday, even after minutes from the last Federal Reserve meeting indicated that inflation pressures raised the chance of another interest rate hike in June. The major indexes ended the month broadly lower.
At Wednesday's close, the Dow gained 73.88, or 0.67 percent, to 11,168.31, after rising as much as 89 points earlier.
Broader stock indicators were also higher. The Standard & Poor's 500 index rose 10.25, or 0.81 percent, to 1,270.09; the Nasdaq composite index added 14.14, or 0.65 percent, to 2,178.88, but still showed a loss for the year.
Bonds slumped on the prospect of rising interest rates, with the yield on the 10-year Treasury note climbing to 5.13 percent from 5.08 percent late Tuesday. The U.S. dollar advanced against the Japanese yen and was flat versus European currencies; gold prices stood near $650 an ounce.
Investors have been searching for clarity on the Fed's next move after the central bank said in early May that higher rates could be needed to battle soaring energy prices. The notes from the Fed's May 10 meeting said its inflation expectations have increased somewhat and left only a slight hint of a pause next month.
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But Douglas Porter, a senior economist for BMO Nesbitt Burns, said there were no major surprises in the minutes given recent signs of economic strength and high oil prices. Stocks tumbled after the Fed report was released but regained their footing shortly after.
However, "the overall impression the minutes leave is that there's a bit more concern about inflation than in previous minutes," Porter said. "I think it comes across loud and clear that these concerns are starting to weigh heavily on Fed members."
After an upbeat start to May, a muddled inflation picture left stocks languishing during the last half of the month, and investors still appeared to be nervous. On Tuesday, a jump in oil prices, weakening consumer strength and poor sales at Wal-Mart Stores (WMT) Inc. triggered a 184-point slide for the Dow Jones industrial average.
Bonds slumped on the prospect of rising interest rates, with the yield on the 10-year Treasury note climbing to 5.13 percent from 5.08 percent late Tuesday. The U.S. dollar advanced against the Japanese yen and was flat versus European currencies; gold prices stood near $650 an ounce.
Lower crude futures helped calm the market's inflation jitters. Reports that the United States is ready to join talks with Iran over its nuclear activities eased worries about a supply cutoff and sent a barrel of light crude falling 73 cents to $71.30 on the New York Mercantile Exchange.
The Fed's minutes capped off a highly volatile month for Wall Street. Hope that the central bank was nearly done lifting rates carried stocks to six-year highs in early May, but the Fed's warning that surging commodities prices remain a problem for inflation launched a two-week selloff that dragged the Dow down 5 percent and put the Nasdaq in the red for 2006.
For the month of May, the Dow lost 1.75 percent, the S&P 500 declined 3.09 percent and the Nasdaq plunged 6.19 percent.
Although the minutes signaled no major changes in the Fed's stance, policymakers expressed greater concerns about escalating prices and reinforced views that the central bank will bump the key short-term lending rate a 17th consecutive time to 5.25 percent at its June 28-29 meeting, Porter said.
He added that the Fed left the door open for future increases. "In a nutshell, these minutes have raised serious doubts about whether the Fed is through," Porter said.
The market faces more tests later this week from data on labor costs and wage growth, both of which are seen as primary drivers of inflation. But while those numbers may offer clues about the likelihood of another rate hike, the Fed's next policy meeting is not until the end of June, said Ryan Larson, senior equity trader for Voyageur Asset Management.
"The key thing to take away right now is that no one really knows what the Fed's policy will be going forward," he said.
Concerns that rising U.S. lending rates will cramp global growth has roiled overseas markets this week. On Wednesday, Japan's Nikkei stock average plunged 2.47 percent, while stocks in Singapore slid 2.4 percent and the Indian market tumbled 3.6 percent.
European markets, however, recouped some of their recent losses, with Britain's FTSE 100 adding 1.29 percent, Germany's DAX index surging 1.25 percent and France's CAC-40 higher by 0.74 percent.
Costco Wholesale Corp. (COST) said its third-quarter profit grew 12 percent but just missed analyst estimates, although its sales came in above targets. Costco slid 63 cents to $52.93.
ADC Telecommunications Inc. (ADCT) is acquiring fellow equipment maker Andrew Corp. in a $2 billion stock swap worth $12.76 per share. ADC also posted a 32 percent slide in quarterly earnings. Andrew rose 34 cents to $10.12, and ADC lost $4.46 to $17.92.
Advancing issues outpaced decliners by almost 3 to 1 on the New York Stock Exchange, where volume of 1.99 billion shares topped the 1.56 billion shares that changed hands Tuesday.
The Russell 2000 index of smaller companies gained 9.97, or 1.4 percent, to 721.01.
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