Stocks rose after a report of relatively modest inflation boosted the bond market and calmed jittery stock investors. Financial shares led the Dow Jones industrials to a new closing record.
The Dow rose 31.33 to close at 11,582.43, just past its previous record of 11,572.20.
Broader stock indicators also closed higher. The Nasdaq composite index broke out of a two-day slump to finish up 107.19 at 3957.21, and the Standard & Poor's 500-stock index rose 17.43, to 1449.68.
Stocks rose after the Labor Department said inflation remained largely under control in 1999.
The report boosted investors' confidence that inflation is not escalating quickly enough to merit sharp interest-rate increases by the Federal Reserve. Higher interest rates can hurt stocks by cutting into corporate profits as it becomes more expensive to borrow money.
The Fed raised interest rates three times in 1999 in an effort to keep inflation under control, and in recent sessions, stocks have been pressured by fears that another series of rate increases are ahead.
The yield on the 30-year Treasury bond dipped to 6.65 percent, from 6.71 percent late Wednesday, as the bond's price rose $6.87 1/2 per $1,000 invested. That news benefited bank and brokerage stocks, which often suffer when rates are rising. J.P. Morgan rose 3-3/16, and Chase Manhattan rose 1-1/16, to 71-5/16.
Merger activity also enlivened the sector. U.S. Trust, an investment firm that caters, to wealthy clients, soared 54 1/8 to 133, after agreeing to be acquired by online and discount broker Charles Schwab for $2.7 billion, or about $129 per share.
The latest development in the consolidating drug industry also sparked buying. Warner-Lambert said it would hold merger talks with hostile suitor Pfizer, abandoning its November decision to be acquired by American Home Products.
Shares of all three companies rose. Warner-Lambert gained 5-1/16, to 91 7/8; Pfizer rose 1-11/16, to 36-13/16, and American Home Products rose 7/16, to 42 5/8.
Technology stocks reversed two days of steep losses. Apple Computer rose 9-9/16, to 96 3/4, after Morgan Stanley Dean Witter raised its rating on the stock to "outperform" from "neutral."
Microsoft depressed the Dow for much of the session before turning higher in advance of a late-afternoon news conference at which founder and chairman Bill Gates announced that the company's president, Steve Ballmer, will take over the job of chief executive officer.
In extended-hours trading, Microsoft shares edged down to 107 3/4, from 107-13/16 at the 4 p.m. close.
Trading was fairly volatile in advance of Fed Chairman Alan Greenspan's evening speech on technology and the economy in a speech before the Economic Club of New York.
Traders were also awaiting the government's Friday report on price pressures at the retail level.