Blue-chip stocks rose today after a report of moderate inflation calmed investors' fears of higher interest rates, but their renewed optimism failed to lift technology stocks, which slumped following a profit warning from Dell.
The Dow Jones industrial average extended its Monday gain of 96.57, rising another 88.65 points to close at 10,204.93. The index fell back from an earlier gain of 219 points.
Broader stock indicators were mixed. The Standard & Poor's 500-stock index rose 7.19, to 1261.32, and the technology-dominated Nasdaq composite index fell 0.97, to 2688.18.
Stocks initially soared after the Labor Department said its consumer price index, the government's most closely watched inflation gauge, rose 0.4 percent in September. That was the biggest increase in five months, but in line with Wall Street expectations.
A persistent fear that inflation is accelerating has sent stocks plunging in recent weeks, driving the Dow 10.7 percent below its Aug. 25 record close. Investors fear rising inflation will prompt the Federal Reserve to raise interest rates for the third time this year in a bid to slow economic growth.
While the report is unlikely to prevent the Fed from raising rates, analysts were heartened by components of the report that suggested inflation remains under control.
The market was also reassured by a Commerce Department report that showed construction of new homes and apartments fell by 3.2 percent in September, the second straight monthly decline. Analysts said rising mortgage rates and Hurricane Floyd slowed building activity.
Bank and financial stocks benefited from the improved outlook for interest rates. American Express rose 2 to 139 7/8 and Bank of America gained 3-15/16 to 53 1/2.
Reports of strong corporate earnings added to the market's gains. Johnson & Johnson soared 5 1/4 to 99 3/4 after reporting earnings that beat analysts' expectations.
The financial and drug sectors also attracted investors in search of bargains, said Richard A. Dickson, a technical analyst at Scott & Stringfellow in Richmond.
"What you're seeing is a rebound in some of the stocks that have beaten down quite a bit," he said. "There's some substance to it, but maybe less than meets the eye."
Technology stocks lagged the broader market. Dell fell 2-13/16 to 38 1/2 after saying late Monday a surge in the price of computer memory chips will likely hurt its third-quarter earnings.
The warning from Dell, the nation's largest direct seller of computers, fostered fears that many computer makers will face similar troubles. Also, Dell's decision to reduce the amount of memory it uses in its computers, hoping to cut costs, hammered chip makers like Intel, down 4 1/4 to 65 1/8, and Micron Technology, down 5 7/8 to 62 3/8.
Dickson said Dell's warning, coupled with fears that computer sales may slow leading up to the year 2000, rattled the sector.
"These stocks have priced in a lot of really good times," he said. "Now there are some worries being voiced, and they have to slip back."