Dow up 66, but late selling trims gains

By Charley Blaine and Elizabeth Strott

Stocks rallied today thanks to lower oil prices and a surprisingly tame report on consumer price inflation, but late-day selling trimmed the overall gains.

At the close, the Dow Jones industrials were up 66 points, or 0.5%, to 12,898. The Nasdaq Composite Index was up 1.6 points, or 0.1%, to 2,497, and the Standard & Poor's 500 Index was up 6 points, or 0.5%, to 1,409.

Selling seemed to be set off this afternoon when the S&P 500 hit 1,420, which was just below its May 2 high.

The Nasdaq had been up more than 33 points before the selling kicked in; yet the close was still its best since Jan. 7. Among stocks that were hit by selling was Apple (AAPL, news, msgs), which fell nearly 2% to $186.26. Google (GOOG, news, msgs) also fell late in the day, finishing down 1.2% to $576.30.

Both stocks weighed on the S&P 500 as well.

The market's strength came from financial companies, airlines, semiconductor makers, disk drive manufacturers, home builders and retailers. Freddie Mac (FRE, news, msgs) was the S&P 500 leader with a 9.2% gain to $27.25.

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Computer maker Hewlett-Packard (HPQ, news, msgs) was the leader among the 30 Dow stocks today with a 3.1% gain to $45.64. The stock had been the Dow loser on Tuesday in part because some investors thought the $12.8 billion offer it made to acquire Electronic Data Systems (EDS, news, msgs) was too high.

Icahn organizes a slate to fight Yahoo

Billionaire investor Carl Icahn is reportedly moving ahead with plans to wage a proxy fight for control of Yahoo (YHOO, news, msgs).

Reuters reported that Icahn now has more than enough people to unseat Yahoo's entire 10-member board, all of whom are up for election at the company's annual meeting on July 3. Icahn and Yahoo officials were unavailable for comment.

Yahoo was up 2.2% to $27.14 in regular trading today and an additional 1.7% in after-hours trading to $27.60. They're up about 20% from their low on May 5, the first day of trading after Microsoft (MSFT, news, msgs) walked away from its $47.5 billion offer. (Microsoft is the publisher of MSN Money.)

Many investors were angered when Yahoo didn't reach a merger agreement with Microsoft. This could help Icahn as he tries to push his candidates through and change the direction of the company.

Microsoft hasn't said if it would be interested in reviving talks with Yahoo, as many shareholders have hoped.

GE is getting out of appliances

Dow component General Electric (GE, news, msgs)plans to seek buyers for its appliances business, as CEO Jeffrey Immelt continues a push to shed mature industrial businesses in favor of higher-growth technology operations.

A sale, which could fetch upward of $5 billion, would end 100 years of GE's involvement with appliances, The Wall Street Journal said. The company has hired Goldman Sachs (GS, news, msgs)to run the auction.

With appliance sales getting hit by the slowing U.S. economy and the housing bust, unloading the business could help GE reach its long-term goal of boosting profits by at least 10% annually, The Journal said.

GE was up 0.6% to $32.51 and climbed an additional 0.4% to $32.65. The stock has been pressured since GE surprised investors by missing earnings estimates with its first-quarter results.

CPI report sparks a rally

Today's rally was set off by the Labor Department's monthly Consumer Price Index report for April, which was surprisingly benign. (Many investors, though, said they thought the report understated several problems, especially the rising cost of gasoline.)

Meanwhile, crude oil fell back 1.3% to $124.22 a barrel. Heating oil and wholesale gasoline also fell back. Crude fell despite a smaller-than-expected gain in U.S. oil supplies.

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Crude's fall helped airlines and transportation stocks. The Dow Jones Transportation Average ($DJT) was up 59 points, or 1.1% to 5,347. American Airlines parent AMR Corp. (AMR, news, msgs) jumped 5.4% to $9.11. Southwest Airlines (LUV, news, msgs) rose 2.9% to $13.50.

Also helping the market were the Freddie Mac results and better-than-expected earnings from Macy's (M, news, msgs), the nation's largest department store chain. Macy's was up 3.6% to $24.93.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$124.22	$125.80	-$1.58	9.48%	29.42%
Heating oil (per gallon)	$3.6178	$3.6989	-$0.0811	13.87%	36.55%
Natural gas (per million BTU)	$11.5980	$11.4220	$0.1760	6.96%	54.99%
Unleaded gasoline (per gallon)	$3.1804	$3.2000	-$0.0196	8.50%	27.69%

Inflation worries ease for now

Today's CPI report offered some relief to those who worry inflation is getting out of control.

The consumer price index rose 0.2%, according to the Labor Department's report -- a smaller increase than the 0.3% economists had expected and down from the 0.3% increase in March.

Core prices, which exclude volatile food and energy prices, rose 0.1% in April. Energy prices were flat in April, the report said (an assertion that was subject to considerable debate), and food prices jumped 0.9%, the biggest increase in 18 years.

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The CPI report may give the Federal Reserve some room to breathe before having to make any rate increases to combat inflation. The Fed has lowered interest rates repeatedly over the past eight months to help boost the slowing economy, slashing the federal funds rate from 5.25% to 2%.

But the report's assertion that gasoline prices fell 1.8% generated laughter on trading floors. The reason: The consumer price index is seasonally adjusted to account for normal price fluctuations. Gasoline prices, for example, usually rise about 7% in April as driving starts to gear up after the winter. But gas prices rose around 5%. So the CPI interpreted that as a price decline.

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Still, the report also gives support to the idea that the economic slowdown is helping ease some of the inflationary pressures of surging food and energy prices.

"The effects from slowing growth are starting to pull down inflation," Lehman Bros. economist Zach Pandl told Bloomberg News. "Companies aren't in a good position right now" to raise prices on goods.

Construction slowdown slams Deere

The weak housing sector and the economic slowdown are hurting farm- and heavy-equipment maker Deere (DE, news, msgs). The stock was hit hard today, falling 9.9% to $81.25, the second-worst performance among S&P 500 stocks.

The company said today that markets for construction and forestry equipment will be pressured for the foreseeable future because of tumbling housing starts. Starts may hit 60-year lows in 2009. On Friday, the Commerce Department will report on April housing starts.

At the same time, Deere cautioned that rising material costs, especially for steel, would hurt earnings for the rest of the year. The company forecast net income between $550 million and $575 million for the current quarter, well below analysts' expectations of $638.9 million.

Deere also forecast a 3% decline in construction machinery orders this year.

The company reported fiscal-second-quarter net income of $763.5 million, or $1.74 per share -- a 22% rise from the $623.6 million, or $1.36 per share, Deere earned a year ago. The results matched the consensus estimate.

Deere has benefited from rising global demand for corn, sugar cane and other food products.

Investors cheered despite Freddie Mac loss

Mortgage-finance company Freddie Mac is still feeling the pain of the housing mess, but shares rose after earnings beat expectations.

The company this morning said it lost $151 million, or 66 cents per share, worse than the loss of $133 million, or 46 cents per share, the company reported in the same period a year ago.

But shares surged because analysts had been looking for a loss of 84 cents per share.

The company said the loss was due in part to the surge in foreclosures nationally. Freddie Mac said its credit losses for the first quarter amounted to $1.2 billion; credit losses are expected to total about $2.2 billion this year and $2.9 billion next year.

The company said it will raise $5.5 billion in new capital.

"People need to accept the fact that the rest of the year for the enterprises and the rest of the mortgage market are going to be really ugly," said Christopher Whalen, managing director at Institutional Risk Analytics, to Bloomberg News.

Last week, rival Fannie Mae (FNM, news, msgs) reported a loss of $2.19 billion.

Fannie Mae shares were up 6.9% to $29.89. Fannie Mae is down 25% so far this year; Freddie Mac is down 20%. But shares have jumped 58% and 64% off their lows in mid-March.

Foreclosures hit record in April

A foreclosures report this morning indicates that the housing market still has a way to go.

The number of U.S. foreclosure filings soared to 243,353 in April, up 65% from last year, according to RealtyTrac, a company that tracks foreclosures across the country. Last month, almost one of every 519 households in the country received foreclosure filings, which include default notices, auction sales and bank repossessions.

The number of foreclosure filings was up 4% from March.

Nevada had the highest foreclosure rate in the country -- one out of every 146 homes, or 3.6 times the national average, RealtyTrac said. California followed, with one out of every 204 households in some stage of foreclosure.

The housing market has been suffering its worst slump in decades.

As bad as the foreclosure statistics were, homebuilding shares moved higher, in sympathy with the jumps for Freddie Mac and Fannie Mae.

Pulte Homes (PHM, news, msgs) jumped 6.8% to $13.77, second-best among S&P 500 stocks after Freddie Mac. Lennar (LEN, news, msgs) was third in the S&P 500, up 6.4% to $19.91. The Philadelphia Housing Sector Index ($HGX.X) was up 1.7% to 141.

Greenspan calls a bottom

Former Federal Reserve Chairman Alan Greenspan said that the housing market will bottom early next year.

In a speech at an economic conference in Asia, Greenspan said that housing will turn around when the market starts to absorb the buildup of inventories.

The former Fed chief said that an end to the credit crisis is also coming. "Not immediately, not in the months directly ahead," he said, "but certainly as we get into 2009.".

But Greenspan said he believes oil prices will continue to rise because oil companies have not been reinvesting enough in production capacity and infrastructure to deal with high demand.

Weak orders hit chip maker

Chip-equipment maker Applied Materials (AMAT, news, msgs) late Tuesday reported a 26% drop in profit for its fiscal second quarter as the company was hit by the weak economy.

AMAT said it earned $302.5 million, or 22 cents per share, down from $411.4 million, or 29 cents per share, a year ago. Excluding charges, earnings were 24 cents per share, topping Wall Street's estimate by 2 cents.

Applied Materials said new orders fell by 9% in the quarter to $2.41 billion, and the company is focusing on its solar business to try to offset weak demand in the chip sector.

"The overall business environment is clearly marked by a shifting global economy with uncertain macroeconomic conditions," CEO Mike Splinter said in a call with analysts. "Based on recent conversations with customers, we expect to see a further slowdown in semiconductor capital expenditures."

Things weren't all gloom and doom: Splinter said he thinks demand will bottom in the third quarter. Applied Materials makes up about 20% of the entire chip-equipment sector; its results and guidance are often clues to how much businesses are spending on technology. Shares finished up 4 cents to $19.90.

Short hits from the markets -- 4 p.m.

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.785%	1.785%	0.000	33.21%	-43.15%
5-year Treasury note yield	3.228%	3.169%	0.059	6.43%	-6.57%
10-year Treasury note yield	3.938%	3.909%	0.029	4.76%	-2.40%
30-year Treasury bond yield	4.637%	4.619%	0.018	3.11%	3.99%
Currencies
U.S. Dollar Index	73.565	73.435	0.130	1.16%	-4.08%
British pound in dollars	$1.9470	$1.9474	-0.0004	-2.06%	-2.12%
Dollar in British pounds	£0.5136	£0.5135	0.0001	2.11%	2.17%
Euro in dollars	$1.5477	$1.5480	-0.0002	-0.91%	5.90%
Dollar in euros	€ 0.6461	€ 0.6460	0.0001	0.92%	-5.57%
Dollar in yen	105.11	105.01	0.10	1.14%	-6.03%
Canadian dollar in U.S. dollars	$0.997	$0.997	$0.0000	0.32%	0.42%
U.S. dollar in Canadian dollars	$1.004	$1.004	-$0.0001	-0.24%	-0.40%
Commodities
Gold	$866.50	$882.10	-$3.10	0.16%	3.40%
Copper	$3.6810	$3.7315	-$0.05	-5.72%	21.05%
Silver	$16.6130	$16.8280	-$0.22	0.12%	11.35%
Corn	$5.9625	$6.0725	-$0.11	-0.67%	30.90%
Crude oil (NYMEX) (per barrel)	$124.22	$125.80	-$1.58	9.48%	29.42%