Dow up 214 as Wal-Mart sales cheer Street

By Charley Blaine and Elizabeth Strott

Stocks romped today to their biggest gains since mid-April, as discount retailers such as Wal-Mart Stores (WMT, news, msgs) and Costco Wholesale (COST, news, msgs) reported better-than-expected sales.

The Dow Jones industrials closed up 214 points, or 1.7%, to 12,604. The Standard & Poor's 500 Index was up 27 points, or 2%, to 1,404, and the Nasdaq Composite Index added 47 points, or 1.9%, to 2,550. The point and percentage gains for the three indexes were their best since April 18, a day when the Dow jumped 229 points.

Wal-Mart reported sales in May rose 3.9% from a year ago; Costco's gain was 9%, in part because of a big increase in gasoline sales. Wal-Mart and Costco shares were up 3.7% to $59.80 and 3.8% to $73.50, respectively. It was Wal-Mart's best close since March 2004.

The rally sets up the possibility of a dramatic day on Friday. The Labor Department will issue its monthly reports on nonfarm payrolls and unemployment -- the most widely watched economic reports of any month.

Nonfarm payrolls, the number Wall Street cares most about, are expected to fall 50,000 to 60,000, although one report this week suggested the number could be stronger than that.

The rally survived some buffeting. Standard and Poor's downgraded its ratings on bond insurers Ambac Financial (ABK, news, msgs) and MBIA (MBI, news, msgs) from AAA to AA; both stocks, however, moved sharply higher. Ambac finished up 5.2% to $2.62, and MBIA was up 7.3% to $6.04. Investors had been selling shares on the probability of downgrades and bought when the news finally hit.

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The market also had to contend with the biggest-ever daily dollar gain for crude oil. Crude closed at $127.79 a barrel in New York, up $5.49, or 4.5%, from Wednesday.

In fact, the big rally in crude -- which came as the dollar tumbled against the euro -- sent energy shares jumping and was a big reason the rally ended up being so big. (The dollar fell after the head of the European Central Bank said the bank might raise European interest rates.)

The Amex Oil Index ($XOI.X) was up 3.9% to 1,565. Chevron (CVX, news, msgs) was up 4.1% to $99.99; offshore driller Transocean (RIG, news, msgs) added 3.5% to $147.47.

The big rally included more than retail and energy stocks.

Verizon Communications (VZ, news, msgs) was the Dow leader with a 5.4% gain to $38.96 after an announcement today that Verizon Wireless will acquire Alltel in a $28.1 billion deal.

In addition, big technology stocks were surging higher, with Google (GOOG, news, msgs), Apple (AAPL, news, msgs) and Microsoft (MSFT, news, msgs) all up more than 2%.

And steel stocks were jumping after Nucor (NUE, news, msgs) raised its second-quarter guidance, thanks to burgeoning demand from the Middle East, Brazil and India. Nucor jumped 8.6% to $80.54 on the news. U.S. Steel (X, news, msgs) was up 5.7% to $183.15.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$127.79	$122.30	$5.49	0.33%	33.14%
Heating oil (per gallon)	$3.6808	$3.5458	$0.1350	0.36%	38.93%
Natural gas (per million BTU)	$12.5050	$12.3790	$0.1260	6.76%	67.11%
Unleaded gasoline (per gallon)	$3.3345	$3.1951	$0.1394	-0.40%	33.87%

Wal-Mart and Costco shine

Wal-Mart's 3.9% sales gain for May was far better than the 1.6% increase economists had expected; it topped the company's own forecast of a 2% gain. Including fuel sales, comparable-store sales rose 4.4% last month.

Wal-Mart's sales were boosted by grocery discounts that attracted customers slammed by soaring food prices. Health and wellness and entertainment sales were strong last month and "the home area showed its first comparable-store-sales increase in more than two years," according to a company press release.

• Talk back: Are you buying your food and gas at Wal-Mart?

The company forecast June U.S. same-store sales excluding fuel up between 2% and 4%.

It's not a huge surprise that Wal-Mart fared well amid the economic slowdown.

"The (discount) clubs continue to benefit from a shift in consumer purchasing habits, namely consolidated shopping trips and maximizing dollars spent as consumers choose one destination to stock up, particularly on food," JPMorgan analyst Charles Grom wrote in a note to clients on Monday.

Costco Wholesale's 9% sales gain beat the analysts' estimate for a 7% sales gain. The company said U.S. sales rose 7% last month; excluding gasoline, sales rose 5%.

Other discounters did nicely today, too. Family Dollar Stores (FDO, news, msgs) was up 5.3% to $23.06. Its same-store sales were up 1.8%.

Kohl's (KSS, news, msgs) added 3.7% to $46.93. Its sales were off 7%, but that was better than expected. The Standard & Poor's Retail Index ($RLX.X) was up 1.9% to 407 on the day.

Dillard's (DDS, news, msgs) said same-store sales fell 7% in May, more than double the 3.3% expected decline. Sales at clothing chain Gap (GPS, news, msgs) were down 14%, worse than analysts' expectations of a 9.5% decline; teen apparel chain Abercrombie & Fitch (ANF, news, msgs) said sales fell 9%, worse than the expected drop of 4.8% last month.

Weekly jobless claims fall

The number of initial jobless claims fell by 18,000 last week to 357,000, the lowest level in more than a month, the Commerce Department reported this morning.

The four-week moving average also declined, falling by 2,750 to 368,500 for the last week in May. On Friday, the Labor Department is expected to show a decline of 60,000 jobs in May. The unemployment rate is expected to rise to 5.1% from 5%.

Continental slashes jobs, fleet size

Another airline is taking steps to reduce its size because of the soaring price of fuel.

Continental Airlines (CAL, news, msgs) this morning announced plans to cut 3,000 jobs and to retire 67 older jets. "The airline industry is in a crisis," Continental said in a press release. "Its business model doesn't work with the current price of fuel and the existing level of capacity in the marketplace. We need to make changes in response."

The job cuts represent about 6.5% of its total work force. The company said it will cut flights after the summer season.

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Continental said fuel costs average about $50,000 per employee. "At that price and at our current capacity, our fuel expense this year would be $2.3 billion more than it was last year."

Continental's moves follow similar decisions by UAL's (UAUA, news, msgs) United Airlines and AMR Corp.'s (AMR, news, msgs) American Airlines. Continental cited the price of jet fuel, which closed at $151.26 a barrel on Wednesday, a 75% increase from last year.

Continental shares were up 4.8% to $15.20 on the day. Other airlines were also rallying. Southwest Airlines (LUV, news, msgs) was up 4.6% to $14.21. Alaska Air Group (ALK, news, msgs) jumped 7.5% to $20.96.

Verizon to buy Alltel

Verizon Wireless's deal to buy privately held Alltel would create a new No. 1 cell phone company.

Verizon Wireless, jointly owned by Verizon Communications (VZ, news, msgs) and Vodafone (VOD, news, msgs), said this morning that it will pay $5.9 billion for Alltel and it will assume $22.2 billion of the company's debt. A combined company would have more than 80 million mobile customers, topping AT&T's (T, news, msgs) 71 million.

Alltel was taken private just seven months ago by TPG Partners and Goldman Sachs (GS, news, msgs) for $27.5 billion and a consortium of banks, which have been looking for a way to get the loans off their books.

ECB likely to raise rates

The dollar fell 1% against the euro today after European Central Bank President Jean-Claude Trichet said he may push for a rise in interest rates.

"It's not excluded that, after having carefully examined the situation, . . . we could decide to move our rates for a small amount at our next meeting," Trichet said at a press conference in Frankfurt, Germany. "I don't say it's certain. I said it's possible."

Inflation in Europe rose 3.6% in May.

Trichet's comments come after the ECB decided to leave its benchmark rate at 4% this morning; the Bank of England also kept interest rates steady at 5%.

The euro rose on the possibility of that rate increase, pushing the dollar lower. Not only did it push oil prices higher, but other commodities were rising as well, including silver, corn and wheat.

Latinos hit by housing

With unemployment in focus this week ahead of Friday's May jobs data, a report from the Pew Hispanic Center says Hispanics have been hit hardest by the housing slump, causing a surge in unemployment for Latinos.

The unemployment rate for Hispanics working in the U.S. rose to 6.5% in the first quarter of the year, the report said, much higher than the 4.7% rate for non-Hispanics and a jump from the historic low of 4.9% in the fourth quarter of 2006.

The weak housing market has caused a slowdown in construction, a mainstay of job growth for many Hispanic workers, including immigrants. "The latest trends in the labor market represent a dramatic reversal for Latino workers. Hispanics lost nearly 250,000 jobs over the past year because of the recent slump in the construction sector," the report said.

The Labor Department says that 26% of approximately 7 million construction workers in the U.S. are Hispanic, but some believe that the number is higher because many workers are hired under the table.

The report was based on the Pew Hispanic Center's analysis of the latest data from the Bureau of Labor Statistics and Census Bureau.

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

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.810%	1.805%	0.005	-2.16%	-42.36%
5-year Treasury note yield	3.298%	3.213%	0.085	-3.20%	-4.54%
10-year Treasury note yield	4.025%	3.940%	0.085	-0.52%	-0.25%
30-year Treasury bond yield	4.730%	4.685%	0.045	0.49%	6.08%
Currencies
U.S. Dollar Index	73.075	73.505	-0.430	0.17%	-4.72%
British pound in dollars	$1.9558	$1.9550	0.0008	-1.39%	-1.68%
Dollar in British pounds	£0.5113	£0.5115	-0.0002	1.41%	1.71%
Euro in dollars	$1.5593	$1.5427	0.0166	0.22%	6.69%
Dollar in euros	€ 0.6413	€ 0.6482	-0.0069	-0.22%	-6.27%
Dollar in yen	106.05	105.24	0.81	-0.32%	-5.19%
Canadian dollar in U.S. dollars	$0.980	$0.984	-$0.0040	-2.68%	-1.30%
U.S. dollar in Canadian dollars	$1.021	$1.018	$0.0036	2.80%	1.35%
Commodities
Gold	$875.50	$882.10	-$8.30	-1.27%	4.47%
Copper	$3.5430	$3.5450	$0.00	-1.69%	16.51%
Silver	$17.1700	$16.9400	$0.23	1.67%	15.08%
Corn	$6.4325	$6.1450	$0.29	7.35%	41.22%
Crude oil (NYMEX) (per barrel)	$127.79	$122.30	$5.49	0.33%	33.14%

Yahoo responds to Icahn

Yahoo (YHOO, news, msgs) Chairman Roy Bostock late Wednesday called billionaire investor Carl Icahn's charges about how Yahoo handled merger negotiations with Microsoft (MSFT, news, msgs) "unsubstantiated."

Earlier on Wednesday, shareholder activist Icahn accused Yahoo Chief Executive Officer Jerry Yang of going to "inordinate lengths" to sabotage Microsoft's bid for Yahoo. Microsoft on May 3 withdrew a $33-per-share offer for Yahoo. (Microsoft is the publisher of MSN Money.)

"Your letter seriously misrepresents and manipulates the facts regarding the recent events pertaining to Microsoft and Yahoo," Bostock responded. Bostock also said that it was Microsoft that no longer wanted to pursue a deal with Yahoo.

Yahoo President Susan Decker said Wednesday that Yahoo and Microsoft were discussing options, and talks between the two companies could wrap up as early as the next week or two, according to a Reuters report late in the day.

Yahoo shares were down 1.8% to $26.36 today.