Dow industrial average closes at six-year high

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NEW YORK – U.S. stocks ended higher Thursday as strong April sales results for retailers and a drop in crude-oil prices to a one-month low lifted the Dow Jones Industrial Average to its best level in more than six years.

Gains came even as the latest data showed a rise in labor costs in the first quarter, a worrying development for those investors concerned the Federal Reserve may have to keep raising interest rates to choke off inflationary pressures.

The Dow industrials rose 38.58 points to 11,438.86. Of the 30 Dow components, 20 contributed to gains.

The Nasdaq Composite Index was up 19.93 points at 2,323.90 and the S&P 500 Index climbed 4.40 points to 1,312.25.

Chuck Carlson, the chief executive of Horizon Investment Services, said strong corporate results are “trumping all other concerns,” including inflation issues and interest rates. He believes stocks will keep an “upward bias” as consumers continue to boost the economy. Listen to audio report.

For Art Hogan, chief market strategist at Jefferies & Co., the productivity data released early in the session were somewhat of a double-edged sword.

“Nonfarm productivity came in better than expected but unit labor costs rose 2.5 percent,” he said.

, more than double what expectations were, so there is a push and a pull there,” he said. The Federal Reserve has made it clear it will be looking closely at data to help it decide the future course of interest rates. The central bank’s fed funds rate currently stands at 4.75 percent and it is widely expected to raise that rate by a quarter percentage point when it meets next week.

The market, meanwhile, could take some comfort from falling oil prices, Hogan added.

On the broader market for equities, advancers outpaced decliners 5 to 3 on the New York Stock Exchange and by 18 to 11 on the Nasdaq.

By sector, semiconductors, Internet stocks, airlines, gold stocks, networkers, banks and brokers all moved higher.

Oil services, energy and computer-software stocks were the most significant decliners.

Volume was 1.74 billion on the Big Board, and 2.09 billion on the Nasdaq.

Productivity in the American workplace increased at a 3.2 percent annual rate in the first three months of the year, the Labor Department said Thursday. Unit labor costs – a key inflation gauge – increased 2.5 percent in the nonfarm business sector in the quarter. Both numbers were higher than expected. Economists surveyed by MarketWatch predicted productivity would rise 2.9 percent, while unit labor costs were expected to rise 1.3 percent.

Ahead of the April employment report due Friday, the Labor Department reported that first-time applications for state unemployment benefits drifted higher by 5,000 last week to 322,000, the highest level since Nov. 19.

Crude-oil futures fell to a one-month low as concerns over Iran took a back seat to supply data that showed the first increase in U.S. gasoline supplies in nine weeks and placed crude inventories at their highest level in eight years.

Crude for June delivery ended down $2.34, or 3.2 percent at $69.94 a barrel, its weakest close since April 7. Gasoline futures, meanwhile, dropped to a three-week low.

Crude hit an intraday low of $69.30, the lowest price seen since April 10.

The energy sector may be able to parry the fall in crude with news that European oil giants Royal Dutch Shell and Total reported better-than-forecast first-quarter earnings, with both companies saying rising oil and gas prices made up for declines in production.

The U.S. dollar traded lower against its major counterparts. The euro rose 0.7 percent to a one-year high of $1.2711 against the dollar. Earlier, the European Central Bank left its key interest rate unchanged at 2.5 percent but hinted more rate rises are to come.

Against the yen, the greenback fell 0.2 percent to 113.56.

The British pound rose 0.7 percent at $1.8536. The Bank of England announced it was holding U.K. interest rates steady at 4.5 percent.

Gold futures rose, as part of a broad rally in metals, helped by weakness in the dollar. The benchmark June contract ended up $8 at $676.50 an ounce. Copper futures, meanwhile, closed at a record high.

On the bond market, long-term Treasurys ended little changed as investors kept to the sidelines ahead of the April employment report due on Friday. The benchmark 10-year note ended down 1/32 at 95 1/32, with its yield at 5.15 percent.

Shaking off two months of tepid shopping trends, consumers took to the malls and shopping centers to ring up robust year-over-year sales in April.

“Retail sales were just great across the board,” said Charles Rotblut, senior market analyst at Zacks.com. “But I am wondering whether the strong gains are sustainable.”

Rotblut said retailers in April benefited from the late Easter holiday, good weather and gasoline prices that began to rise significantly only toward the end of the month. Retailers may not be so lucky with May results.

Wal-Mart Stores Inc. set the pace with a 6.8 percent rise in same-store sales, buoyed by brisk sales of toys, games and candy for the Easter holiday. Sales matched the company’s own forecast and handily outpaced the 5.7 percent average again expected by analysts.

The world’s largest retailer, however, is forecasting a slowdown in May, with same-store sales expected to grow 2 percent to 4 percent. Same-store sales, a common measure of retail performance, logs sales from stores open at least a year. Wal-Mart shares fell 29 cents at $46.40 after climbing more than 1 percent in the prior session ahead of the release of its sales figures.

Rival Target Corp. posted a 10.4 percent rise in April same-store sales, a touch ahead of the 10 percent average target of Thomson First Call analysts. It sees May same-store sales increasing 4 percent to 6 percent. Target shares fell 0.7 percent.

Also in the discount space, Costco Wholesale Corp. posted a 7 percent rise in same-store sales, ahead of analyst estimates, while BJ’s Wholesale Club Inc. managed a 1.2 percent gain in April, again ahead of Wall Street expectations. Costco was up 2.9 percent but shares of BJ’s added 0.7 percent.

American Eagle Outfitters, Limited Brands, Pacific Sunwear of California, Abercrombie & Fitch and The Gap Inc. all posted same-store sales that came in ahead of analyst estimates.

But it was not all good news.

Sharper Image Corp., the electronic gear retailer, saw same-store sales tumble 32 percent in April. The stock was off 3.6 percent.

Other retailers that underperformed include Chicos’s FAS, Pier 1 Imports Inc. and Hot Topic.

Starbucks Corp. tacked on 3.9 percent to $38.79 after the coffee chain saw second-quarter profit climb 17 percent to $127 million, or 16 cents a share, ahead of analyst expectations.

Shares in Tyco International rose 3.6 percent to $27.92 after the company, with interests in electronics, health-care and fire and safety devices, booked a strong second quarter and announced a $2 billion share buyback.

International Paper Co. reported a loss of more than $1.2 billion for the first quarter as it held out several paper-making businesses for sale in a far-reaching restructuring program. The stock fell 9 cents at $36.97.



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AP-NY-05-04-06 1731EDT

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