NEW YORK -- U.S. stocks, led by bank, insurance and other financial issues, posted their biggest one-day gain in almost two weeks yesterday amid perceptions the Federal Reserve is finished raising interest rates this year.
The Labor Department said prices paid for goods and services rose just 0.3 percent in November, suggesting inflation isn't a threat as the economy expands. Excluding food and energy prices, consumer inflation rose just 0.2 percent, less than the 0.3 percent expected.
"People think we've struck a happy medium," said Jim Benning, a trader at BT Brokerage Inc.
The Dow Jones industrial average jumped 30.95, to 3,746.29, its biggest gain since it advanced 44.75 points on Dec. 2. AT&T; Corp., Union Carbide Corp., Caterpillar Inc. and United Technologies Corp. led the advance.
The rally got a boost from companies such as Dow Chemical Co., AT&T;, General Electric Co. and United Technologies signaling confidence in their earnings outlooks. Dow Chemical and GE also recently hinted at dividend increases, and J. P. Morgan & Co. increased its payout yesterday.
The Standard & Poor's 500 index rose 4.83, to 454.98, extending Tuesday's 0.68-point advance. Telephone, financial and chemical stocks led the gain.
The Nasdaq composite index added 6.18, to 725.67; its gain was tempered by a drop in Novell Inc. Novell shares fell $1.375, to $15.875, after the software company posted a 31 percent decline in fourth-quarter profit from operations, worse than expected.
The Russell 2000 index climbed 2.03, to 237.87, and the American Stock Exchange market value index rose 2.84, to 423.07. Twice as many stocks rose as fell on the New York Stock Exchange. Trading was active, with about 355 million shares changing hands on the Big Board.
lTC Financial stocks rose for a fourth day as the CPI report fueled optimism that rates will stay stable, bolstering profits for banks and insurance companies.
"In recognition of that, financial stocks are exploding, and creating the leadership for the market," said Philip Orlando, money manager at $100 million First Capital Advisers. Many financial stocks "are selling at 52-week lows and are probably 25 percent undervalued. All the smart money is jumping in."
Fleet Financial Group Inc. closed up $1.25, at $32.25; First Interstate Bancorp went up $1.25, to $70; Banc One Corp. went up 50 cents, to $27; KeyCorp closed up 62.5 cents, at $25.375; and NationsBank climbed 37.5 cents, to $46.50.
Shares of insurance companies rose amid optimism that inflation won't accelerate and interest rates will stabilize, said Douglas Pyle, managing partner at $2.8 billion-asset Cashman Farrell & Associates.
The S&P; property-casualty index of six stocks gained 14.23, or 3.1 percent, to 46.32. American International Group Inc. rose 37.5 cents, to $27.875; Chubb Corp. added $2.625, to $74.875; and General Re Corp. rallied $5, to $123.375.
Chemical shares also helped to lead the market higher. Dow Chemical surged $3, to $66.875, after management told analysts Tuesday that it foresees higher chemical prices and a rebound in European sales and would consider a dividend increase in 1995.