Positive data indicating a cooling economy lifts investors' spirits and technology stocks.
The Producer Price Index, a measure of wholesale prices and inflation, decreased 0.2 percent in August, the Labor Department said today. Most analysts expected prices to rise by 0.2 percent. Excluding the more volatile food and energy sectors, the core PPI rose 0.1 percent in August.
In addition, the Commerce Department said retail sales, a key measure of consumer spending and the level of demand throughout the economy, rose 0.2 percent in August, which matched analysts' expectations.
The wholesale and retail data helped boost the markets and investors' confidence that the national economy is not in danger of overheating. The data gives more weight to speculation that the Federal Reserve will maintain interest rates for the rest of the year.
"Inflation pressure continues to recede," said John Ryding, chief economist at Bear Stearns.
The number of people filing jobless claims also rose in the week ended Sept. 9, which means the tight supply of labor is softening. That also releases some of the pressure on companies to pay more wages to hire and retain workers--another sign that the hot economy is not headed not for a crash, but for a soft landing.
Initial claims rose to 324,000 from the previous week's 311,000, the highest level since January 1999, and the four-week moving average rose 2,500 to 318,500.
The Nasdaq composite index rose 63.41 to 3,957.30, and the Standard & Poor's 500 index climbed 2.23 to 1,487.14. Dragged down by consumer stocks including McDonald's, Coca-Cola and Procter & Gamble, the Dow Jones industrial average fell 64.75 to 11,117.43.
The CNET tech index climbed 49.53 to 3,140.33. Advancers led decliners, with 74 of the 97 stocks in the index rising, 19 falling and four remaining unchanged.
Almost all of the 18 sectors tracked by CNET Investor made early gains. Internet e-tailers and telecom equipment companies led the pack, rising about 4 percent each. PC software makers were the day's only losers, slipping 0.11 percent.
Shares of Conexant led the Nasdaq higher, rising $14.94, or 40 percent, to $52 on volume of 44.8 million shares, making it the most active stock on the Nasdaq.
The Newport Beach, Calif.-based company said it will spin off its network-access division, which makes chips for the Internet-infrastructure market. The remaining company will house all of Conexant's other chipmaking businesses, including semiconductors for cell phones, modems and other consumer electronics.
Other chipmakers followed Conexant's surge. The Philadelphia semiconductor index rose 20.59, or 2 percent, to 1,027.57, led by chip equipment maker Novellus Systems, which gained $3.06 to $58. Analyst Eric Ross at Thomas Weisel Partners raised revenue estimates on the company today.
Chipmaker Broadcom rose $14.56 to $233.06, but Intel slipped 13 cents to $61.13.
Cisco Systems rose $1.38 to $62.69, and Oracle gained $3.13 to $84.94.
Oracle is expected to post uncharacteristically strong sales and earnings for its first fiscal quarter today, fueled by sales of application and database software. Morgan Stanley raised the company to "strong buy" from "outperform."
Inktomi rose $13.25, or 12 percent, to $122. The Internet software maker announced yesterday that it would buy closely held FastForward Networks for $1.3 billion in stock.