Stocks get a boost from airline offer

Wall Street rallied again Wednesday, with the Dow Jones industrials scoring another record close, as the market got a boost from a surprise $8-billion bid from US Airways Group for Delta Air Lines.

But stocks pulled back from their highs after the minutes from the Federal Reserve’s Oct. 24-25 meeting showed that policymakers remained more worried about inflation than the risk the economy would slow too quickly under tighter credit.

Even with their concern about inflation risks, however, Fed policymakers still stuck to their forecast that slowing economic growth and a calming down of once surging energy prices will eventually lessen inflation pressures.

“It looks as though the Fed is bringing the economy in for a true soft landing with growth slowing down but not too much,” said Stuart Schweitzer, global markets strategist at JP Morgan Asset and Wealth Management.

The Dow index closed up 33.70 points, or 0.3%, at 12,251.71, a new high, after hitting a peak of 12,291 at midday.

Energy, industrials and consumer staples sectors led the advance.

Broader stock indicators also gained. The Standard & Poor’s 500 index advanced 3.35 points, or 0.2%, to 1,396.57. It surpassed the 1,400 mark at midday, the first time it has traded above that level since 2000.

The S&P;’s record closing high of 1,527.46 was in March 2000.

The Nasdaq composite index rose 12.09 points, or 0.5%, to 2,442.75, its highest level in 5 3/4 years.

Winners topped losers by more than 3 to 2 on the Big Board in active trading.

Bond yields rose after the Fed minutes were released, and after a surprisingly strong report on New York-area manufacturing activity. The yield on the 10-year U.S. Treasury note rose to 4.62% from 4.57% on Tuesday.

The Fed minutes lend support to the notion that the central bank will again leave short-term interest rates unchanged when it meets Dec. 12. Many investors are hoping a rate cut could be in the offing next year. The Fed has left rates flat at its last three meetings.

“I don’t think the Fed needs to wreck the economy in order to contain inflation,” Schweitzer said, adding that he believed the central bank should remain watchful of tightening labor costs. Last month, the nation’s unemployment rate fell to a five-year low.

Crude oil futures rose 48 cents a barrel to $58.76 on the New York Mercantile Exchange after an Energy Department report showed U.S. inventories of gasoline and distillates such as heating oil had declined more than expected.

Some analysts are worried that the stock market is getting ahead of itself. The Dow has risen in six of the last seven weeks.

Scott Fullman, director of investment strategy for Hapoalim Securities USA, said he saw a risk of stocks becoming overbought.

“We have people looking for a reason to come in and buy even though the markets are at high levels right now,” he said.

Fullman said it would be wise for investors to consider hedging their positions, especially given that the run-up began in the normally weaker October period and has continued into the generally stronger final months of the year, raising questions about how long the gains might hold.

Among the day’s market highlights:

* US Airways shares soared $8.57, or 17%, to $59.50 on Delta’s surprise bid. Delta shares added 5 cents to $1.52.

Other airline stocks moved higher. Continental Airlines rose $4.72, or 12%, to $43.08, and United Airlines parent UAL gained $3.29, or 9%, to $39.99.

The airlines’ gains sent the Dow Jones transportation average soaring 65.70 points, or 1.4%, to 4,830.43.

* Boeing rose $1.34 to $87.08. The company may receive more than $10 billion in orders in the next few weeks as airlines hurry to take up a dwindling number of early delivery slots in the company’s production schedule, a published report said.

* Google rose $2.63 to $491.93, a record close, and traded as high as $499.85. Shares of the most-used Internet search engine were rated “outperform” by Credit Suisse. Google completed its purchase of YouTube Inc. this week, making it “the top online video destination,” a Credit Suisse analyst wrote in a note.

* AT&T; paced a slump in telephone companies, a sector that has been the worst performing of 10 industry groups in the S&P; 500 since the Democrats took control of the House and Senate in last week’s elections. The political power shift spurred concern that Congress might force a delay in regulatory approval of AT&T;’s $78 billion purchase of BellSouth.

AT&T; fell 50 cents to $32.46. BellSouth slid 56 cents to $42.36.

* Comverse Technology and Jabil Circuit had the biggest losses in the S&P; 500 after revealing accounting errors.

Comverse, whose former chief executive officer, Jacob Alexander, faces extradition to the U.S. to face a securities-fraud charge, reported accounting errors and potential misuse of funds. The stock dropped $2.95, or 14%, to $17.69.

Jabil lost $1.26, or 4.2%, to $29.12. A contract manufacturer of Nokia cellphones will restate 2005 results to reflect backdating of stock-option grants.

* Embrex soared $4.72, or 40%, to $16.64 after the company agreed to be acquired by drug maker Pfizer for $155 million cash to better serve the poultry vaccination market.

* RailAmerica jumped $3.44, or 28%, to $15.82 after the short line railroad operator agreed to be acquired by Fortress Investment Group, a hedge fund manager, for $1.1 billion.