FINANCIAL MARKETS : STOCKS : Wholesale Price Data Pushes Dow Up 30.95

Stock prices rallied Thursday in buying inspired by cheering news on inflation.

But the advance lost some of its edge in the latter stages of the session as traders waited to see how much encouragement the Federal Reserve would need to ease credit conditions further.

The Dow Jones average of 30 industrials climbed 30.95 to 2,905.45.

Gainers outnumbered losers by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,104 up, 494 down and 458 unchanged.

Big Board volume came to 196.57 million shares, up from 167.94 million Wednesday. Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 235.03 million shares.

The Labor Department reported that the producer price index of finished goods dropped 0.3% in March. Excluding its highly variable food and energy, the index posted a 0.2% increase, down from a 0.4% rise the month before.

Analysts said those figures provided strong evidence that the Federal Reserve had ample maneuvering room to ease its credit policy further.

A separately reported 0.8% drop in retail sales last month also suggested that the Fed had cause to think about relaxing credit conditions.

But the central bank gave no sign of an immediate response. Interest rates were mixed in the credit markets as traders studied the numbers.

An additional reading on the state of inflationary pressures is due this morning with the monthly report on the consumer price index. If advance estimates prove correct, the March CPI will be up about 0.2%.

Among the highlights:

* Philip Morris rose 1/4 to 68 1/2, General Electric gained 3/8 to 72 3/4, USX advanced 1/8 to 33, McDonald’s climbed 1 1/8 to 35 3/8 and Bristol-Myers Squibb jumped 1 5/8 to 78 1/4.

* J.P. Morgan surged 3 1/8 to 50 1/2. The company reported first-quarter earnings of $1.40 a share, up from 86 cents a share before an accounting adjustment in the corresponding period last year.

* Elsewhere in the banking group, Citicorp rose 3/8 to 15 1/2, BankAmerica gained 1 1/2 to 37 7/8, Chase Manhattan added 7/8 to 17 1/2 and Manufacturers Hanover climbed 1 1/8 to 27 5/8.

* Laidlaw Class B shares fell 1 to 12 7/8 on sharply lower quarterly profits. Another prominent stock in the environmental services sector, Waste Management, lost 1 7/8 to 36 7/8.

In London, the Financial Times-Stock Exchange 100-share index ended 12.8 points higher at 2,531.6.

In Frankfurt, Germany, the 30-share DAX index closed up 3.48 points at 1,565.37.

In Tokyo, the Nikkei average finished 156.33 points higher at 26,425.19.

Credit

Bond market participants reacted cautiously to a report showing moderate inflation in March and withheld any active trading until today’s release of a consumer prices survey.

The Treasury’s bellwether 30-year bond rose 3/32 point, or 94 cents per $1,000 in face amount. Its yield slipped to 8.25% from 8.26% late Wednesday.

The Labor Department reported that its producer price index dropped 0.3% in March. The moderate inflation rate increased speculation that the Federal Reserve would cut interest rates to speed the economy’s recovery.

Bonds typically rally on lower interest rate movements because they make existing bonds more valuable. But the central bank made no such move and bond activity remained light.

The federal funds rate, the interest on overnight loans between banks, held at 5.625%, unchanged from late Wednesday.

Currency

The dollar headed steadily lower on world currency markets as investors continued to view the economic climate as favorable for lower U.S. interest rates.

The selloff in the dollar was triggered by fresh economic data that traders said might encourage the Federal Reserve to lower interest rates, a move typically bearish for the U.S. currency.

In Tokyo, the dollar fell to a closing 136.65 Japanese yen from 137.20 yen at Wednesday’s close. Later in London, it fell to 135.90 yen. In New York, the dollar settled at 136.20 yen, down from 137.43 yen Wednesday.

In London, the British pound rose to $1.7905 from $1.7800 late Wednesday. In New York, it cost $1.7904 to buy one pound, more expensive than Wednesday’s $1.7760.

Other late dollar rates in New York, compared to late Wednesday’s rates, included: 1.6705 German marks, down from 1.6800; 1.4118 Swiss francs, down from 1.4295; 5.6485 French francs, down from 5.6815; 1,239.75 Italian lire, down from 1,246.00, and 1.1506 Canadian dollars, down from 1.1513.

Commodities

Near-term cotton futures prices fell sharply, but analysts predicted that the setback would be short-lived, especially after a government report indicated that export demand for U.S. cotton remains strong.

On other commodity markets, energy futures retreated; grains and soybeans were mixed; precious metals fell, and livestock and meat futures were mixed.

Cotton futures settled 1.39 cents lower to 0.07 cent higher on the New York Cotton Exchange, with the contract for delivery in May down 1.32 cents at 86.63 cents a pound.

The price break resounded in the atmosphere of rising prices that characterized the cotton market in five of the six previous sessions. Even with the decline, May cotton remained more than 4% above its April 3 settlement of 83.08 cents.

Analysts said the selloff probably was triggered by the Agriculture Department’s monthly supply-and-demand report released Wednesday. The USDA raised its projection for the July 31 world cotton stockpile by 1.5 million bales to 25.5 million, mainly due to a 1-million-bale increase in the agency’s estimate of China’s supply.

Precious-metals futures ignored a sharp drop in the dollar and settled modestly lower on New York’s Commodity Exchange.

Gold futures finished $1.50 to $1.70 lower, with April at $362.90 an ounce; silver was 0.7 to 0.8 cent lower, with April at $3.965 an ounce.

Market roundup, D6