NEW YORK -- Stocks closed mostly higher yesterday after the Labor Department reported that producer prices fell last month. The report alleviated concern about inflation and caused interest rates to decline.
"There is no inflation problem, but the recovery is sluggish, and that's posing some problems for the market," said John Church, senior vice president at Glenmede Trust Co., which manages $8 billion.
That was the case yesterday, as the Dow Jones industrial TC average, which is more vulnerable to slow economic growth than other indexes are, fell. Broader market averages gained.
The Dow closed down 7.83 points, to 3,640.07, below its session high of 3,669.14. The Dow's decline was led by shares of Goodyear Tire & Rubber Co., Boeing Co., Du Pont Co. and International Business Machines Corp.
But advancing common stocks exceeded declining issues by a margin of about 4-to-3 on the New York Stock Exchange. Trading was active, with about 276 million shares changing hands on the NYSE.
The Standard & Poor's 500 Index rose 0.12, to 460.33, and the Nasdaq Combined Composite Index climbed 3.63, to 769.84. The American Stock Exchange Market Value Index fell 0.58, to 476.02.
Most stocks rose as concern about inflation all but disappeared after the Labor Department reported that producer prices declined 0.2 percent in October. Analysts had been expecting producer prices to increase 0.3 percent.
"Inflation is a nonissue, and rates are low, so earnings growth is the key for this market right now," said Peter Canelo, investment strategist at NatWest Securities Corp. "If earnings don't continue to expand, this market is going to run into some trouble."
Stocks retreated from session highs in the afternoon, when the Treasury said demand was lower than expected for the government's sale of a record $17 billion in three-year notes. The yield on the 30-year Treasury bond fell to 6.14 percent, from 6.19 percent Monday.
"As long as rates stay below 6.20 percent, the stock market should be in good shape," said Thom Brown, managing director at Rutherford Brown & Catherwood Inc.
Judging from low oil prices, interest rates should remain low, Mr. Brown said. A change in oil prices can have an exaggerated effect on inflation because oil is used throughout the economy. West Texas Intermediate closed yesterday at $16.66 a barrel, its lowest price since July 1990.
The fall in oil prices caused a decline in shares of oil exploration companies. Chevron Corp. declined $1, to $92.50; Exxon Corp. fell 12.5 cents, to $63.875; and Texaco Inc.fell 12.5 cents, to $64.875.
While oil stocks slipped, tobacco stocks rallied after R.J. Reynolds Tobacco Co. boosted the wholesale price of most cigarettes by $2 per 1,000 cigarettes, or about 40 cents a carton.
RJR Nabisco Holdings Corp. gained 37.5 cents, to $6.75; Philip Morris Cos. rallied $1.125, to $55.875; and American Brands Inc. rose 12.5 cents, to $33.25.
Meanwhile, the rally in the stock market was tempered by concern about the fate of the North American Free Trade Agreement and a slump in Japan's Nikkei 225 Index. The Nikkei 225 plunged 499.45 points, or 2.7 percent, to 18,125.71. The fall was triggered by reports of lower-than-expected corporate profits and a report that two affiliates of Daishowa Paper Manufacturing Co., Japan's second-largest paper manufacturer, paid $920,000 to a politician in return for approval of a development project.
"I still think the market remains in a corrective phase, and I doubt the stock market is going to do much until the NAFTA situation is cleared up," said William Raftery, market analyst at Smith Barney Shearson Inc.
Shares of Boston Chicken Inc., a restaurant chain that began trading as a public company yesterday, more than doubled in price. Boston Chicken closed at $48.50, compared with the $20 that the underwriting group paid for the stock. The Naperville, Ill., company raised $56 million through the sale of 1.9 million shares through a group led by Merrill Lynch & Co., as well as the private sale of 900,000 additional shares to executives.