Stocks Rise Despite Inflation, Oil Worries

NEW YORK – A flurry of options and futures trading pushed stock prices higher Friday, offsetting investors' worries about increasing trade deficits, but the major indexes ended the week mixed as nervousness mounted over the Federal Reserve's pending decision on interest rates.

The Dow Jones industrial average (search) ended up 38.89 points, or 0.37 percent, at 10,416.41. The Standard & Poor's 500 Index (search) rose 2.95 points, or 0.26 percent, to 1,135.00. The Nasdaq Composite Index (search) closed up 3.06 points, or 0.15 percent, at 1,986.73.

For the week, the Dow edged up 0.06 percent, while the S&P 500 dipped about 0.13 percent and the Nasdaq fell 0.66 percent.

"Oil prices are higher, but I wouldn't say there's any big catalyst today," said Neil Massa, an equity trader at John Hancock Advisors in Boston. "Everyone's focused on the end of the month with the Iraqi handover and the Fed meeting, and no one's taking a stand one way or another before then."

Alcoa Inc. (AA), the world's biggest aluminum producer, led the blue-chip Dow's percentage gainers. Analysts said that weakness in the dollar, following a report showing the U.S. current account gap widened more than forecast, boosted shares of Alcoa and other cyclical stocks.

Blackboard Inc. (BBBB) topped percentage gainers on the Nasdaq in its first day of trading, a day after its initial public offering was priced. Shvarious derivatives contracts also helped gains, traders said. Friday marked the expiration of four different types of options and futures, an event that occurs once a quarter and can cause volatility in trading.

Friday was a "triple witching" day on Wall Street — when options and futures contracts expire — which customarily means increased volatility in individual stock prices. However, overall volatility was low even as prices rose.

"It's really hard to say how much of this is due to witching, but I guess there's some of it in there," said Scott Wren, equity strategist for A.G. Edwards & Sons. "With the data that's out there, there's definitely some inflation worries, but the markets seem to be leaving that out. If they are, it'll still be a short reprieve."

The Commerce Department (search) reported that the current account deficit, which also includes the flow of investment dollars and foreign aid along with the trade of goods and services, rose to a record $144.9 billion in the quarter ending in March, surpassing the record set a year ago. The figure was higher than economists forecast.

Oil prices also rose as the head of OPEC said non-OPEC nations would have difficulty raising output to help make up for the loss of Iraq's oil due to sabotage there. Investors have been worried that a rise in oil prices would trigger a more general inflationary spike.

The Federal Reserve (search) will meet June 29, and it is widely expected to raise the nation's benchmark interest rate by at least 0.25 percent, with the possibility of an 0.5 percent hike not out of the question should the economic data over the next two week show further signs of inflationary pressure.

However, some analysts believe investors might have already priced an interest rate hike into the market, and could be looking ahead to second-quarter earnings, due out next month, which are expected to once again exceed expectations. That would explain Friday's rise in stock prices despite the trade deficit.

"The key is what corporate earnings are going to do, and I think the expectations there are good," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. "They're anywhere from 50 to 80 percent higher than what people were thinking at the beginning of the year. And when all this noise about inflation is taken away, that's what's going to push the markets."

Viacom Inc. (VIAB)shares rose, after the media company disclosed terms of the anticipated split-off of its Blockbuster Inc. (BBI) movie rental business, a move that is expected to generate $738 million in cash.

Viacom shares rose 37 cents, or 1 percent, to $37.03, while those of Blockbuster shed 17 cents, or 1.1 percent, to $15.22.

General Electric Co. (GE) shares also rose, on news that GE and InVision Technologies Inc. (INVN) tentatively agreed to settle lawsuits related to GE's proposed acquisition of InVision, a security technology company.

Two lawsuits related to the deal have been consolidated under one lead case, and if the court approves the settlement, the lawsuits will be dismissed, InVision said. GE shares rose 22 cents, or 0.7 percent, to $32.58, while InVision shares added 5 cents, or 0.1 percent, to $49.85.

On Nasdaq, Blackboard's stock rose $6.01 to close at $20.01, up almost 43 percent from its IPO price of $14 a share. During the session, it hit a high of $23.40 -- up 67 percent.

Fears about higher energy prices eased after an official said Iraq's oil exports could resume on Saturday, if test runs succeed on a southern oil pipeline, which had been damaged by sabotage.

General Motors Corp. (GM) rose 21 cents to $47.98 after announcing a plan to streamline its European operations, bringing underperforming brands such as Saab and Vauxhall under a single management structure.

Archer Daniels Midland Co. (ADM) said it will pay $400 million to settle a federal antitrust lawsuit accusing the company of fixing the price of high fructose corn syrup. ADM was up 7 cents at $16.28.

Red Hat Inc. (RHAT) plunged $2.29 to $20.10 after the Linuxsoftware distributor announced earnings in line with analysts' expectations late Thursday. However, the company's earnings guidance for future quarters was disappointing to many investors, and Red Hat saw its investment rating cut to neutral by First Albany early Friday.

The J.M. Smucker Co. (SJM) saw its quarterly profits fall from a year ago due to lagging sales of its Crisco oil products as well as costs associated with its $800 million acquisition of International Multifoods. Smucker gained a penny to $46.51.

The Russell 2000 index of smaller companies was up 0.97, or 0.2 percent, at 570.54.

Overseas, Japan's Nikkei stock average skidded 2 percent. In Europe, Britain's FTSE 100 closed up 0.3 percent, France's CAC-40 gained 0.6 percent for the session and Germany's DAX index rose 0.4 percent.

Reuters and the Associated Press contributed to this report.