US stocks rise on hopes for Fed action

The US stock market shook off a shaky start and headed higher Thursday after a tame inflation reading and another weak jobs report raised expectations that the Federal Reserve is closer to offering more support for the US economy.

Applications for unemployment benefits rose last week. The four-week average increased for a third straight week, another sign that the jobs market remains weak.

The government also reported that the main measure of USconsumer prices fell in May by 0.3 per cent, the biggest drop since December 2008. Analysts said the slowdown in price increases could make it more likely that the Fed will announce new steps to boost the economy when it meets next week. Low inflation gives the Fed more leeway to inject money into the financial system, keep interest rates low and encourage borrowing.

The Dow Jones industrial average rose 104 points to 12,600 shortly after noon. Home Depot rose 2 per cent, the most of the 30 stocks in the Dow.

``The markets are higher, I think, because there are enough investors who believe that this morning's data on prices and jobless claims increase the case for more Fed easing as soon as next week's meeting,'' said Clark Yingst, chief market analyst at the securities and banking firm Joseph Gunnar.

The Standard & Poor's 500 increased 9 points to 1,324. The Nasdaq composite gained 16 points to 2,835.

The gains were broad. Nine of the 10 industry groups in the S&P 500 made gains and more than two stocks rose for every one that fell on the New York Stock Exchange.

Just the whiff of another round of help from the Fed has been enough to shoot stocks higher in recent weeks, but the gains often disappear as quickly as they arrive. Last Wednesday, the Dow posted its best day this year, surging 286 points. Comments from a Fed official that hinted at more stimulus helped launch the rally.

The rally fizzled the next day, however, after Fed Chairman Ben Bernanke told a closely watched Congressional hearing that no new steps were being contemplated at the moment.

The question of will or won't the Fed act again is top of mind for investors. The Fed's latest round of bond purchases is scheduled to wind down at the end of this month, and market players are wondering whether a third is on the way, or if the current program might be extended. By making trillions of dollars' worth of bond purchases, the Fed helps keep interest rates ultra-low and encourages investors to put money into other assets, like stocks.

``Ultimately, all that matters for investors right now is whether these developments mean the Federal Reserve is more or less likely to ease policy in order to support what they may see as an insufficiently strong economic recovery,'' said Dan Greenhaus, chief global strategist at the brokerage BTIG, in a note to clients.

In Europe, borrowing rates for Spain touched a record high Thursday after the rating agency Moody's cut its credit rating to one notch above junk status. Spain's benchmark 10-year bond hit 6.96 per cent before pulling back.

Among stocks making big moves:

_ Nokia plunged 16 per cent, or 46 cents, to $2.33. The cellphone maker cut its earnings forecast and announced plans to cut $2 billion in costs by the end of next year. Nokia said it will close its main manufacturing plant in Finland, shutter research facilities in Germany and Canada and lay off 10,000 employees.

_ Kroger rose 4 per cent after the grocery store chain raised its profit forecast for the year. The Cincinnati-based company, which operates Ralphs, Food 4 Less and other grocery stores, also announced it will spend $1 billion to buy back its stock. Kroger's stock gained 90 cents to $22.19.

_ Winnebago Industries reported that its quarterly profit more than tripled, mainly because of higher prices for its vehicles. The results topped analysts' expectations. Winnebago's stock rose 4 per cent, or 40 cents, to $9.37.