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<TABLE cellSpacing=0 cellPadding=0 width=635 border=0><TBODY><TR><TD>U.S. Stocks Advance as Fed Says Inflation Is `Relatively Low' Aug 9 (Bloomberg) -- U.S. stocks advanced after the Federal Reserve said inflation is ``relatively low'' and a government report showed higher productivity with a smaller-than-expected increase in labor costs.
``The economy is hitting on all cylinders right now,'' said Thomas Garcia, head of trading at Thornburg Investment Management, which oversees $15 billion in Santa Fe, New Mexico. ``The Fed is basically saying that they are not seeing inflation that is concerning enough to raise'' rates at a faster-than- expected pace, he said.
Cisco Systems Inc. led the rally before the company's earnings report.
The Standard & Poor's 500 Index added 10.08, or 0.8 percent, to 1233.21 as of 2:42 p.m. in New York as 23 of its two dozen industry groups advanced. The Dow Jones Industrial Average was up 91.96, or 0.9 percent, at 10,628.89. Both benchmarks are heading for their first advance in four days. The Nasdaq Composite Index rose 15.98, or 0.7 percent, to 2180.37.
The Fed increased the target overnight lending rate by a quarter percentage point to 3.5 percent.
``Core inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated,'' the Federal Open Market Committee said in a statement.
Economists have boosted their estimates for expansion in the world's largest economy. They expect growth at a 4.1 percent annual rate this quarter, the most since the first three months of 2004, and up from the 3.5 percent estimated last month, based on a Bloomberg News survey. Growth for October through December is predicted to reach a 3.5 percent pace, up from last month's forecast of 3.4 percent.
Productivity, Labor Costs
Productivity, a measure of how much an employee produces for every hour of work, expanded at a 2.2 percent annual rate. Economists predicted a gain of 2 percent.
Labor costs rose at a 1.3 percent annual rate in the second quarter, the Labor Department said. Economists expected an increase of 2.9 percent in a Bloomberg survey. Rising labor expenses that threaten to accelerate inflation support forecasts that the Fed will extend its series of interest-rate increases through the first half of next year.
A Commerce Department report on stockpiles at wholesalers showed a bigger-than-expected increase in June. The gain of 0.7 percent brought the total value of inventories to $353.1 billion and followed a revised 0.3 percent rise in May. Economists in a Bloomberg survey expected an increase of 0.4 percent.
Nine stocks increased for every five that decreased on the New York Stock Exchange. Some 932 million shares changed hands on the Big Board, 10 percent less than the same time a week ago.
Cisco
Cisco added 36 cents to $19.61. The No. 1 maker of equipment that directs Internet traffic will probably say profit rose 16 percent to $1.6 billion in the fiscal fourth quarter, according to the average analyst estimate in a Thomson Financial survey.
Walt Disney Co. added 74 cents to $26.15. The No. 2 U.S. media company is expected to say after the close of U.S. trading that third-quarter profit rose 33 percent to $803.1 million, or 38 cents a share, according to analysts surveyed by Thomson.
About 88 percent of S&P 500 companies have reported results for the most recent quarter. Profit has jumped 13.4 percent on average, compared with analysts' estimates a month ago for expansion of 6.6 percent, according to a Thomson survey.
Biogen, Elan
Shares of Biogen Idec Inc. jumped $3.33, or 8.7 percent, $41.75 for the third-biggest rally in the S&P 500. A review of multiple sclerosis patient data raised speculation that its withdrawn Tysabri medicine may be allowed back on the market. Possible links to a rare fatal disease had led Biogen and Dublin-based Elan Corp. to remove Tysabri Feb. 28.
Elan's American depositary receipts, each representing one share, soared $1.24, or 16 percent, to $9.24.
King Pharmaceuticals Inc. was up $1.43, or 13 percent, at $12.37 for the best performance in the S&P 500. The maker of the Altace treatment for high blood pressure reported second-quarter profit, excluding some items, of 44 cents a share on sales of $462.9 million. Analysts expected 22 cents and $392.5 million, respectively, according to Thomson.
Expedia, Ruth's Chris
Expedia Inc., the world's largest online travel agency, added 98 cents to $23.48 in its first day of trading after billionaire Barry Diller's IAC/InteractiveCorp completed the company's spinoff.
Shares of Ruth's Chris Steak House Inc., which owns a chain of restaurants in the North America and Asia, gained $3.29 to $21.26 in their first day of trading. The company yesterday sold 13 million shares at $18 each, according to a Securities and Exchange Commission filing.
Sonus Networks Inc., the world's No. 2 seller of computer services, surged 55 cents to $5.24. The company unexpectedly reported a second-quarter profit of 4 cents a share, up from 2 cents a year earlier. Analysts surveyed by Thomson expected, on average, a 1-cent loss.
Delphi Corp., the largest U.S. auto-parts maker, rallied 53 cents to $5.56. General Motors Corp., the world's biggest automaker, said it's considering Delphi's request for financial aid. Goldman Sachs analyst Robert Barry wrote that Delphi should avoid bankruptcy and he boosted his Delphi rating to ``in-line'' from ``underperform.''
Amgen Inc., the world's No. 1 biotechnology company, fell $1.13 to $79.27. UBS AG analyst David Molowa said he can no longer recommend investors purchase the stock after its 29 percent rally since July 5. He lowered his rating to ``neutral'' from ``buy.''
Delta
Delta Air Lines Inc. lost 25 cents, or 11 percent, to $1.98 for the worst performance in the S&P 500. Shares of the third- largest U.S. carrier were cut to ``sell'' from ``neutral'' by Merrill Lynch & Co. analyst Michael Linenberg.
Fossil Inc., the seller of watches under the Fossil and Relic brands, slid $2.51 to $21.01. The company cut its second- half forecast for sales growth to as much as 12 percent from up to 16 percent. Fourth-quarter earnings will be 57 cents a share, the company said, less than the 62-cent average estimate of analysts surveyed by Thomson.
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``The economy is hitting on all cylinders right now,'' said Thomas Garcia, head of trading at Thornburg Investment Management, which oversees $15 billion in Santa Fe, New Mexico. ``The Fed is basically saying that they are not seeing inflation that is concerning enough to raise'' rates at a faster-than- expected pace, he said.
Cisco Systems Inc. led the rally before the company's earnings report.
The Standard & Poor's 500 Index added 10.08, or 0.8 percent, to 1233.21 as of 2:42 p.m. in New York as 23 of its two dozen industry groups advanced. The Dow Jones Industrial Average was up 91.96, or 0.9 percent, at 10,628.89. Both benchmarks are heading for their first advance in four days. The Nasdaq Composite Index rose 15.98, or 0.7 percent, to 2180.37.
The Fed increased the target overnight lending rate by a quarter percentage point to 3.5 percent.
``Core inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated,'' the Federal Open Market Committee said in a statement.
Economists have boosted their estimates for expansion in the world's largest economy. They expect growth at a 4.1 percent annual rate this quarter, the most since the first three months of 2004, and up from the 3.5 percent estimated last month, based on a Bloomberg News survey. Growth for October through December is predicted to reach a 3.5 percent pace, up from last month's forecast of 3.4 percent.
Productivity, Labor Costs
Productivity, a measure of how much an employee produces for every hour of work, expanded at a 2.2 percent annual rate. Economists predicted a gain of 2 percent.
Labor costs rose at a 1.3 percent annual rate in the second quarter, the Labor Department said. Economists expected an increase of 2.9 percent in a Bloomberg survey. Rising labor expenses that threaten to accelerate inflation support forecasts that the Fed will extend its series of interest-rate increases through the first half of next year.
A Commerce Department report on stockpiles at wholesalers showed a bigger-than-expected increase in June. The gain of 0.7 percent brought the total value of inventories to $353.1 billion and followed a revised 0.3 percent rise in May. Economists in a Bloomberg survey expected an increase of 0.4 percent.
Nine stocks increased for every five that decreased on the New York Stock Exchange. Some 932 million shares changed hands on the Big Board, 10 percent less than the same time a week ago.
Cisco
Cisco added 36 cents to $19.61. The No. 1 maker of equipment that directs Internet traffic will probably say profit rose 16 percent to $1.6 billion in the fiscal fourth quarter, according to the average analyst estimate in a Thomson Financial survey.
Walt Disney Co. added 74 cents to $26.15. The No. 2 U.S. media company is expected to say after the close of U.S. trading that third-quarter profit rose 33 percent to $803.1 million, or 38 cents a share, according to analysts surveyed by Thomson.
About 88 percent of S&P 500 companies have reported results for the most recent quarter. Profit has jumped 13.4 percent on average, compared with analysts' estimates a month ago for expansion of 6.6 percent, according to a Thomson survey.
Biogen, Elan
Shares of Biogen Idec Inc. jumped $3.33, or 8.7 percent, $41.75 for the third-biggest rally in the S&P 500. A review of multiple sclerosis patient data raised speculation that its withdrawn Tysabri medicine may be allowed back on the market. Possible links to a rare fatal disease had led Biogen and Dublin-based Elan Corp. to remove Tysabri Feb. 28.
Elan's American depositary receipts, each representing one share, soared $1.24, or 16 percent, to $9.24.
King Pharmaceuticals Inc. was up $1.43, or 13 percent, at $12.37 for the best performance in the S&P 500. The maker of the Altace treatment for high blood pressure reported second-quarter profit, excluding some items, of 44 cents a share on sales of $462.9 million. Analysts expected 22 cents and $392.5 million, respectively, according to Thomson.
Expedia, Ruth's Chris
Expedia Inc., the world's largest online travel agency, added 98 cents to $23.48 in its first day of trading after billionaire Barry Diller's IAC/InteractiveCorp completed the company's spinoff.
Shares of Ruth's Chris Steak House Inc., which owns a chain of restaurants in the North America and Asia, gained $3.29 to $21.26 in their first day of trading. The company yesterday sold 13 million shares at $18 each, according to a Securities and Exchange Commission filing.
Sonus Networks Inc., the world's No. 2 seller of computer services, surged 55 cents to $5.24. The company unexpectedly reported a second-quarter profit of 4 cents a share, up from 2 cents a year earlier. Analysts surveyed by Thomson expected, on average, a 1-cent loss.
Delphi Corp., the largest U.S. auto-parts maker, rallied 53 cents to $5.56. General Motors Corp., the world's biggest automaker, said it's considering Delphi's request for financial aid. Goldman Sachs analyst Robert Barry wrote that Delphi should avoid bankruptcy and he boosted his Delphi rating to ``in-line'' from ``underperform.''
Amgen Inc., the world's No. 1 biotechnology company, fell $1.13 to $79.27. UBS AG analyst David Molowa said he can no longer recommend investors purchase the stock after its 29 percent rally since July 5. He lowered his rating to ``neutral'' from ``buy.''
Delta
Delta Air Lines Inc. lost 25 cents, or 11 percent, to $1.98 for the worst performance in the S&P 500. Shares of the third- largest U.S. carrier were cut to ``sell'' from ``neutral'' by Merrill Lynch & Co. analyst Michael Linenberg.
Fossil Inc., the seller of watches under the Fossil and Relic brands, slid $2.51 to $21.01. The company cut its second- half forecast for sales growth to as much as 12 percent from up to 16 percent. Fourth-quarter earnings will be 57 cents a share, the company said, less than the 62-cent average estimate of analysts surveyed by Thomson.
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