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Posted at 11:47 a.m., Tuesday, December 6, 2005

Rising labor productivity lifts stocks

Associated Press

NEW YORK — A sharp jump in productivity, the biggest surge in two years, lifted stocks today, but early gains sputtered, leaving the market up only slightly at the close.

Investors welcomed word from the Labor Department that the nation's productivity rose 4.7 percent over the summer. That helped push labor costs lower, easing fears of inflation on Wall Street.

Despite the advance, trading volume was light, leading analysts to question whether the market could climb substantially higher during the next few weeks.

"There's still an element of the self-fulfilling prophecy here, in that you're seeing people jump into a rally just because it's the end of the year and we're supposed to have a rally," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research. "I wouldn't be surprised if we're lollygagging around here until the end of the year."

The market followed a pattern it has repeated many times since its October low: Gains early in the day were eroded by sharp selling before the close.

The Dow Jones industrial average rose 21.85, or 0.2 percent, to 10,856.86 after being up 101 points in earlier trading. The Dow lost 42.50 on yestrerday.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 1.61, or 0.13 percent, to 1,263.70, and the Nasdaq composite index rose 3.12, or 0.14 percent, to 2,260.76.

Bonds came back after losses in the previous session, with the yield on the 10-year Treasury note falling to 4.49 percent from 4.57 percent late yesterday. The dollar was up against most major currencies, while gold prices rose to a 25-year high in European trading.

Oil prices rose. A barrel of light crude was quoted at $59.94, up 3 cents, on the New York Mercantile Exchange.

Jon Brorson, head of growth equities at Neuberger Berman in Chicago, has been saying for a long time that blue chip stocks look cheap. "I'm hearing everyone and their mother talk about that now," he said.

Large-cap stocks rallied today, but small cap stocks have outperformed their larger peers for 7 years, and continued to do so since the market's October lows, Brorson said.

"Small caps are still sort of in the vanguard here," he said.

That said, many large-cap stocks had a stong day. Wal-Mart Stores Inc. rose 48 cents to $47.62; General Motors Corp. rose 26 cents to $22.39 and The Walt Disney Co. rose 51 cents to $25.52.

Time Warner Inc. rose 2 cents to $18.25 after The Wall Street Journal reported that the company's America Online division is close to a deal with Microsoft Corp. to create an online advertising service to compete with that of Google Inc. Fellow Dow industrial Microsoft slipped 16 cents to $27.69, while Google fell $1.31 to $404.54.

Sears Holdings Corp. posted sharply lower profits from the prior year, but still beat Wall Street forecasts for the quarter. Sales at both Kmart and Sears stores were down from a year ago, continuing a sales slump for the newly combined company. Sears Holdings nonetheless rose $6.26 to $122.97.

Health care products maker Johnson & Johnson fell 58 cents to $60.47 after it said its renegotiated its offer for heart device maker Guidant Corp. is fairly valued and that it remains committed to the deal, one day after Guidant received a higher bid from Boston Scientific Corp. Johnson & Johnson lowered its offer after Guidant recalled and issued warnings for thousands of pacemakers and implantable heart defibrillators. Guidant fell $1.10 to $66.88; Boston Scientific fell 1 cent to $26.34.

Apple Computer Inc. rose $2.23 to $74.05 after it announced a deal with NBC Universal to sell episodes of a dozen shows on Apples online iTunes store. The shows, ranging from "Alfred Hitchcock Presents" to "Battlestar Glactica," expand Apple's TV catalog from five shows to 16. General Electric Co., which owns 80 percent of NBC Universal, rose 3 cents to $35.80.

Advancing issues outnumbered decliners by roughly 9 to 7 on the New York Stock Exchange, where volume came to 1.60 billion shares, down from 1.68 billion traded at the same point yesterday.

The Russell 2000 index of smaller companies rose 1.01, or 0.15 percent, to 687.58.

Overseas, Japan's Nikkei stock average fell 0.82 percent. Britain's FTSE 100 rose 0.52 percent, Germany's DAX index gained 0.65 percent, and France's CAC-40 climbed 0.57 percent.