Stocks extend rally on economic data

Wall Street scored a fifth straight gain and the Dow Jones industrials achieved their third straight record close Thursday after the Labor Department said falling gas prices helped push inflation down last month. Oil prices that plunged to their lowest level in a year added to the advance.

The inflation report, and the prospect of a further decline as oil prices dropped, bolstered the notion that the economy could slow enough to allow the Federal Reserve to eventually lower interest rates.

Though stocks moved higher overall, advancing issues outnumbered decliners by a margin of only 6 to 5 on the New York Stock Exchange, suggesting that some investors are concerned the market could be overbought.

Nonetheless, investors took their cues from the inflation news and indications that a flurry of private equity buyouts would continue, with deals announced for Clear Channel Communications and Reader’s Digest Assn.

Ethan Harris, chief U.S. economist at Lehman Bros. Holdings Inc., said that although the overall economy could show strains, stocks were poised to continue rising because of the strength of profits and balance sheets at corporations.

The Dow rose 54.11 points, or 0.4%, to 12,305.82. The Dow has closed at record levels 17 times since the start of October and again set a new trading high of 12,325.91 on Thursday, passing 12,300 for the first time.

Broader stock indicators also managed gains. The Standard & Poor’s 500 index rose 3.19 points, or 0.2%, to 1,399.76, and the Nasdaq composite index gained 6.31 points, or 0.3%, to 2,449.06. The S&P; is at a six-year high, while the Nasdaq is near a six-year high.

Financials and the consumer discretionary sectors led the advancers Thursday, while energy stocks moved lower as commodity prices fell. Crude oil futures declined $2.50 at $56.26 a barrel on the New York Mercantile Exchange as traders focused on the drop in demand a slowing economy could bring rather than production cuts, which could support prices.

Bond yields rose sharply, with the yield on the benchmark 10-year Treasury note rising to 4.67% from 4.62% on Wednesday. The dollar was mixed against other major currencies, while gold prices fell.

In economic news, the 0.5% drop in the consumer price index, the key measure of inflation, matched the decline in September and marked the first two-month drop since late last year. The core inflation figure, which strips out volatility-prone prices for food and energy, rose 0.1%, the smallest increase in eight months.

The Labor Department also reported the number of Americans seeking unemployment benefits fell by 2,000 to 308,000 last week, the smallest reading in a month. Last month, the nation’s unemployment fell to a five-year low.

Stocks gained after the Philadelphia Fed reported that its index of manufacturing conditions rose to 5.1 from negative 0.7 in October. A positive reading signifies growth. Regional economic conditions “improved slightly� in November, but indicators for new orders and employment weakened.

“It’s much too early to declare victory over inflation,� Harris said. “You’ve got a significant amount of labor cost pressure building. Labor costs are a double whammy for stocks because they can slice into earnings and they can mean a tougher Federal Reserve.�

In other market highlights:

* Clear Channel, the country’s No. 1 owner of radio stations, agreed to be taken private for about $18.7 billion by an investment group led by Thomas H. Lee Partners and Bain Capital Partners. The deal includes about $8 billion in debt. Clear Channel rose $1.24, or 3.6%, to $35.36.

* Reader’s Digest, the magazine publisher and direct marketer, rose $1.19, or 7.6%, to $16.70 after agreeing to be acquired for about $1.61 billion by an investment consortium led by private equity group Ripplewood Holdings.

* Dell fell 65 cents to $25.10 after the computer maker delayed its third-quarter earnings report and announced federal regulators had launched a formal investigation into the company. Dell said it didn’t know the specific nature of the investigation.

Also, dragging on the Nasdaq, Applied Materials fell 67 cents, or 3.6%, to $17.98 after the maker of semiconductor manufacturing equipment reported a weaker-than-expected fiscal fourth-quarter revenue and earnings.

* KBR, a unit of Halliburton, opened for trading after its initial public offering and jumped $3.75, or 22.1%, to $20.75. Car rental company Hertz Global, which also debuted Thursday, was up 72 cents, or 4.8%, at $15.72.

* Sears Holdings tumbled $9.89, or 5.5%, to $169.26 for the second-steepest retreat in the S&P; 500. The department-store company said per-share profit, excluding some items, was 83 cents a share. The average analyst estimate in a Thomson Financial survey was 98 cents.

Bloomberg News was used in compiling this report.