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Tech shares gain on benign economic news

New reports on retail sales and inflation ease investor fears of a pending hike in interest rates.

Stocks gained ground today as reports on retail sales and inflation eased fears of a pending hike in interest rates.

The Nasdaq composite index rose 71.30 to 4,246.16, up nearly 6 percent from its close at 4,023.20 last week. The Standard & Poor's 500 index rose 14.15 to 1,509.99, up almost 2 percent from its 1,478.90 finish a week ago.

The Dow Jones industrial average rose 24.04 to close at 10,812.75 led by American Express, which gained $2 to $57.06. The Dow ended the week up about 2 percent from last week's close of 10,635.

The Labor Department reported that the Producer Price Index (PPI), a measure of prices at the manufacturing level, rose 0.6 percent in June after no increase in May and a decline of 0.3 percent in April.

An 11.8 percent spike in energy prices sparked the overall increase, the largest since the March rise of 0.9 percent. Excluding volatile energy and food prices, the core PPI actually fell 0.1 percent. Economists and analysts expected a rise of 0.1 percent.

"The fall in the core PPI indicates an easing in inflation pressures," said John Ryding, chief economist at Bear Sterns.

Meanwhile, retail sales figures for June released by the Commerce Department today showed a 0.5 percent increase in consumer spending from May. Since June of last year, retail sales have gained 8.7 percent.

May retail figures were revised to a 0.3 percent increase from a previously reported decrease of 0.3 percent. Excluding automobile sales, retail sales in June increased 0.2 percent, compared with a 0.5 percent increase in May.

"The revision is the big news," said Peter Kretzmer, an economist at Banc of America Securities. The number indicates that overall consumer demand may have accelerated over the past few months, and Kretzmer said he believes the revision may cast some uncertainty on this month's numbers.

Many analysts concluded that the two reports do not give the Federal Reserve strong evidence that the economy is heating up, thus reducing the likelihood of a boost in interest rates in the near term. Still, most economists think the Fed's work is far from over.

"Wages are accelerating and unemployment is low, so consumers will probably continue to spend," said Greg Mount, a senior economist at Bank One. Mount believes this mix will eventually lead to greater inflation pressures.

"We'll eventually see an acceleration in inflation, but we got a reprieve this month," he said. Mount added that the Fed will most likely increase rates twice more this year, but not necessarily in August.

"The Fed doesn't lose anything by sitting back and watching (more) data come in," he said. "They're not behind the inflation eight ball yet."

Among widely held tech stocks, Intel closed up $3.50 at $146.69 and traded as high as $147.06. In the past year, its shares have traded as low as $50.12. Microsoft shares fell $1 to $78.94. Both companies are listed on the Dow.

The CNET tech index rose 88.53 to close at 3,037.66. Seventy of the 97 stocks in the index advanced, with 24 declining and three remaining unchanged.

Of the 18 sectors tracked, e-tailers and Internet service providers posted the strongest increases, rising 9 percent and nearly 7 percent, respectively. PC software makers were the day's largest losers, slipping a slim 0.21 percent.

The initial public offering of OmniVision Technologies, a maker of image sensors used in digital cameras and handheld computers, was the largest percentage gainer on the Nasdaq. The shares rose $21, or nearly 162 percent, to $34.

Shares of Extended Systems were the largest percentage loser on the Nasdaq. The Boise, Idaho-based company's shares fell $37.06, or nearly 42 percent, to $50.06 on volume of 1.15 million shares, nearly eight times the stock's average daily volume.

The company announced that it expects to post a loss of 9 cents to 11 cents a share for the fourth quarter because of lower-than-expected sales in Europe. One analyst surveyed by First Call expected the company to lose 1 cent a share.

Extended Systems makes database and network management software, as well as wireless connectivity products.

Among members of the CNET tech index, and 3Com posted strong gains.

Amazon rose $7.50, or 21 percent, to $42.50. Analysts at Credit Suisse First Boston and Salomon Smith Barney reaffirmed their "buy" ratings on the stock.

3Com rose $9.31, or 14 percent, to $73.63 after it set the share ratio for the remaining shares it owns of Palm. Shares of Palm rose $8.88, or 24 percent, to $45.44 on volume of 32.6 million shares, more than eight times the stock's average daily volume. Palm was the second-most-active stock on the Nasdaq.

The Philadelphia semiconductor index rose 50.12 to 1,239.12, led by chipset designer Rambus, which rose $10.50, or 11 percent, to close at $105.

Vitesse Semiconductor shares fell $11.13, or nearly 13 percent, to $75.56 on a volume of 17.1 million shares, nearly four times the stock's daily average. The chipmaker posted earnings that were in line with Wall Street expectations, but some analysts expected more from the Camarillo, Calif.-based company.