Wall Street Gains After Inflation Report

Investors sent shares near their 2006 highs on Friday after benign inflation data and low oil prices boosted confidence that the Federal Reserve will keep interest rates unchanged at its meeting next week.

Stocks finished the week broadly higher in its strongest winning streak in more than a month, putting the Dow Jones industrial average 162 points away from its all-time closing high. Wall Street remained upbeat heading into next Wednesday's Fed meeting, where central bankers are expected to keep rates unchanged.

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Data released in recent weeks has increasingly backed projections the economy is in check, and slowing enough for a soft landing. Supporting this was the Labor Department's Consumer Price Index, as well as Friday's release of the University of Michigan's consumer sentiment report and the Fed's industrial production numbers.

Although many stock strategists say the markets already expect the Fed to keep rates steady, they do suggest the central bank's assessment of the economy next week could set the tone for the remainder of the year. Central bankers refrained from raising rates when they last met on Aug. 8 after 17 straight hikes in two years.

"The Fed, in my view, has put their stake in the ground with their forecast of decelerating economic growth is going to take some of the pressure off of inflation going forward," said Alan Gayle, senior investment strategist with Trusco Capital Management. "This kind of data is going to be very supportive of that policy strategy, and should allow the Fed to keep with a state interest rate policy for now."

The Dow Jones industrial average advanced 33.38, or 0.29 percent, to 11,560.77, leaving it 162.21 points away from its high close of 11,722.98, reached Jan. 14, 2000.

Among broader indexes, the Standard & Poor's 500 index added 3.59, or 0.27 percent, closing at 1,319.87. The Nasdaq composite index rose 6.86, or 0.31 percent, to 2,235.59.

Bonds rose slightly, with the yield on the benchmark 10-year Treasury note flat at 4.79 percent from late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

The price of a barrel of light, sweet crude rose 11 cents to $63.33 on the New York Mercantile Exchange. Crude fell in eight of the past nine trading sessions, and that decline is expected to figure in the Fed's decision; the price of oil has been a big contributor to higher inflation this year.

In a day packed with economic reports, there was also no shortage of corporate news to keep traders busy.

Automakers were in focus after Ford Motor Co. (F) said it will slash its work force by about a third, or 14,000 positions, and cut operational costs by $5 billion through 2008. Wall Street felt the plan fell short of what Ford needs for a turnaround, and shares fell $1.07, or 12 percent, to $8.02.

DaimlerChrysler (DCX) gave up $3.54, or 6.7 percent, to $49.36 after cutting its outlook. The German automaker said Chrysler is "facing a difficult market environment" because of excess inventory and legacy costs for employees and retirees.

Leading technology stocks higher was Adobe Systems Inc., which makes graphics software such as Photoshop. After reporting better-than-expected results late Thursday, the company provided guidance that soothed fears sales would weaken in the current quarter. Shares added $3.35, or 10 percent, to $37.

Dynegy Inc. rose 31 cents, or 5.4 percent, to $6.07 after agreeing to buy generating plants from LS Power Group for $2.3 billion. Another deal pushing stocks higher was Starbucks Corp.'s $13.5 million agreement to buy 40 stores from rival Diedrich Coffee Inc., sending shares of the coffee chain up 82 cents, or 2.5 percent, to $33.85.

Also lifting major indexes was a jump in homebuilders, which have all hovered near 52-week lows as the housing market has continued to slow. Hovnanian Enterprises Inc. rose $1.08, or 3.8 percent, to $29.30; Pulte Homes Inc. advanced 70 cents, or 2.2 percent, to $31.97.

Speculation that drugmaker Schering-Plough Corp. is trying to strike a deal with rival Bristol-Myers Squibb Co. (SMY) pushed stocks higher. Bristol-Myers increased 22 cents to $21.33, while Schering-Plough advanced 22 cents to $21.33.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume surged to 2.2 billion from just 1.47 billion traded at the same point on Thursday. Volume was no doubt made heavier Friday by the quarterly expiration of options as well as a rebalancing of stocks that make up the S&P 500 index.

The Russell 2000 index of smaller companies rose 1.75, or 0.24 percent, to 729.35.

Overseas, Japan's Nikkei stock average closed down 0.47 percent. At the close, Britain's FTSE 100 was flat, Germany's DAX index rose 0.52 percent, and France's CAC-40 added 0.41 percent.

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