Stocks Edge Higher Despite Rate Concerns

Wall Street stabilized at the end of a difficult week Friday, closing moderately higher as investors shook off some of their stress about interest rates. The major indexes each lost about 2% this week.

The higher close came after an erratic session, a sign that investors are still unsettled about inflation in the absence of any new economic data. An upswing in consumer prices this week sparked fears that the Federal Reserve will keep hiking interest rates, sending the Dow Jones industrial average down 291 points Wednesday and Thursday.

Meanwhile, lower oil prices and further declines in bond yields brightened the market’s mood, as did a sharp recovery of the U.S. dollar against the Japanese yen. Dell’s plan to use Advanced Micro Devices chips in its computers propped up the tech sector.

Although Wall Street maintained its anxiety over the interest rates, stocks should soon see a significant bounce after several days of steep declines, said Ken McCarthy, chief economist for VFinance Investments.

“I think we are pretty overdone here,” McCarthy said of the market’s correction. “If you look at the fundamentals supposedly driving this [sell-off], they’re very minor. We have some nervousness here, but the underlying fundamentals are still very strong.”

The Dow rose 15.77 points, or 0.1%, to 11,144.06, after gaining as much as 52 points earlier. The Dow declined 514 points, or 4.4%, in the previous six trading days.

Broader stock indicators also advanced. The Standard & Poor’s 500 index gained 5.22 points, or 0.4%, to 1,267.03, and the Nasdaq composite index swelled 13.56 points, or 0.6%, to 2,193.88.

The Russell 2,000 index of smaller companies rose 4.07 points, or 0.6%, to 722.54.

Advancing issues led decliners by about 3 to 2 on the New York Stock Exchange. Expiration of futures and options contracts made trading volatile.

The market has been on edge since the Fed said last week that soaring commodities prices posed a problem for inflation and could require higher interest rates. Many on Wall Street attribute the recent correction in stocks to investors coming to terms with the threat of more rate hikes.

Wednesday’s consumer price index report was evidence that interest rates could keep climbing and sent investors running for cover. For the week, the Dow lost 2.1%, S&P; 500 slid 1.9% and Nasdaq declined 2.2%.

Recent weakness in the U.S. dollar also has stoked inflation worries because its falling value will require more of the currency to purchase foreign-made goods. But the dollar regained ground Friday on the Japanese yen and the euro.

The euro fell to $1.277 from $1.283, and the dollar traded at 111.66 yen, up from 110.89.

Gold futures plunged $22.90 to $656.70 an ounce, with some analysts saying that its recent run-up in prices was driven by speculative traders.

“You don’t see steel, cement or other basic materials prices going up. What you see is gold, copper and oil going up, and I think a big piece of this is pure speculation, not driven by economic fundamentals,” McCarthy said. “Because of that, I don’t think we have an inflation problem.”

Although stock traders were uneasy about this week’s inflation data, the bond market has been more upbeat about evidence of slowing economic growth. The yield on the 10-year Treasury note was unchanged Friday at 5.06%.

In other market highlights:

* Crude oil futures tailed off despite worries about overseas conflicts and speculation that the summer driving season will strain U.S. gasoline reserves. A barrel of light crude fell 92 cents to $68.53 in New York trading.

* Dell said late Thursday that it would begin offering AMD chips in some of its computers, a significant switch from its long-standing use of only Intel processors. Dell rose 62 cents to $24.57 and AMD gained $3.60 to $34.95, while Intel slumped 29 cents to $18.36.

* Shares of Lake Forest-based Western Digital, which makes computer hard drives, rose $2.43, or 12.6%, to $21.70. In a note to clients, Bear Stearns said Western Digital was the “next logical acquisition target” after Seagate Technology’s acquisition of Maxtor.

* Apparel retailer Gap late Thursday said its profit slid 17% last quarter amid a deepening sales slump that the company said should end in the second half of the year. Gap rose 56 cents to $18.48.