NEW YORK, May 11 (Reuters) - The rally by U.S. stocks maintained most of its momentum at midday on Thursday as data showing soft U.S. retail sales for April kept the recovery from this week's three-day sell-off going strong, taking some pressure off the Federal Reserve to continue raising interest rates to prevent inflation.
Analysts said a 50-basis-point rate hike by the Fed at its meeting next Tuesday has been factored into the market. But they noted that weaker-than-expected retail sales last month suggest the Fed could relax its anti-inflation policy in the future.
``To a certain degree, the market bottomed out yesterday,'' said Ken Sheinberg, head of New York Stock Exchange trading at SG Cowen. ``The retail sales numbers came in lighter than expected. Any sense that the economy is slowing down will give people a reason to put some money to work.''
Before the market opened, the Commerce Department reported that retail sales fell 0.2 percent in April, the first decline in almost two years. Economists said the report indicated that recent Fed hikes in borrowing costs may have started to cool off the economy. Economists polled by Reuters had expected a gain of 0.4 percent in April retail sales.
The Dow Jones industrial average (^DJI - news) gained 151 points, or 1.46 percent, to 10,519, after giving up 168.97 points on Wednesday.
Intel Corp. (NasdaqNM:INTC - news) was the leader in the 30-stock Dow, rising 6-15/16 to 113 after the world's No. 1 computer chip maker unveiled a plan to build an Internet media business. The stock was still well off its highs, having sunk nearly 10-7/8 points on Wednesday after the company said it had detected a chip defect.
Support in the 30-stock Dow also came from interest-rate-sensitive financial services companies such as J.P. Morgan (NYSE:JPM - news), up 4 at 126-5/8, and American Express Co. (NYSE:AXP - news), up 1-1/2 to 49-3/16. The Philadelphia Stock Exchange's bank index (^BKX - news) gained 2.94 percent.
The broader Standard & Poor's 500 index (^SPX - news), which includes many technology names, rose 18 points, or 1.31 percent, to 1,401.
The tech-packed Nasdaq composite index (^IXIC - news) was up 69points, or 2.05 percent, at 3,454, after surrendering 200.28 points on Wednesday. The Nasdaq, pounded for three straight days this week, remains about 31 percent off its March 10 high of 5,048.62.
In the Nasdaq, Applied Materials Inc. (NasdaqNM:AMAT - news) recovered after dropping at the open despite reporting second-quarter profits that more than tripled. The world's biggest maker of computer chip-making equipment was up 1/16 at 84-11/16. The Philadelphia Stock Exchange's semiconductor index (^SOXX - news) advanced 4.61 percent.
Most market sectors were on the rebound, including the volatile Internet, biotechnology and computer maker groups that have run up and down like the needle on a sewing machine. Gold, drugs and paper were among the few sectors that were down.
The Commerce Department's report on retail sales, the catalyst for the rally, also said the ``core'' retail sales rate, which strips out auto sales, was unchanged in April. Economists had expected core retail sales to rise 0.3 percent. That news, welcomed by Wall Street, was somewhat tempered by upwardly revised retail sales figures for March.
``I think that if we start to see more statistics like this, then the Fed will have absolutely no ammunition to keep raising rates,'' said Peggy Farley, president of Ascent Meredith Asset Management. ``This means that the Fed has already been successful in slowing the economy and probably will ease off in raising rates in the future.''
But recent economic reports showing the economy is in danger of overheating have many Wall Street pros betting that the Fed next week will raise rates by 50 basis points, or half of a percentage point. A basis point is one-hundredth of a percentage point.
``This one-month slowdown should not derail the Fed from hiking the fed funds rate by 50 basis points next week,'' said Stan Shipley, senior economist at Merrill Lynch in New York, in a report.
The fed funds rate is the rate for overnight bank loans.
A big move on rates would be a departure from the Fed's policy of raising rates by just 25 basis points at a time. The Fed has made five such moves since last June in an effort to curb inflation.
On Friday, Wall Street will get a more important piece of inflation news, with the release of April's Producer Price Index (PPI), a gauge of wholesale inflationary pressures.
The overall PPI is expected to drop 0.2 percent in April. Core PPI, with volatile food and energy prices stripped out, is expected to gain 0.1 percent.
The 10-year U.S. Treasury 10-year note slipped 12/32, with the yield rising to 6.45 percent from 6.44 percent at Wednesday's close. The 30-year U.S. Treasury bond fell 21/32, with the yield rising to 6.20 percent from 6.15 percent atWednesday's close.
On the New York Stock Exchange, advancing issues outnumbered losers by better than two to one, with 506.5 million shares changing hands. There were 45 stocks hitting new highs and 45 at new lows.
Among the big movers, Motorola Inc. (NYSE:MOT - news), the world's No. 2 maker of mobile phone equipment, rose 3-3/8 to 90-7/16 after a huge slide on Wednesday following Salomon Smith Barney's lowering of its investment rating on the stock.
Cisco Systems Inc. (NasdaqNM:CSCO - news), the world's No. 1 maker of data networking equipment, was the most active stock -- for the fourth straight day -- on Nasdaq. Cisco rose 1-1/8 to 59-5/8, after falling earlier this week on valuation concerns.
The retail sector, also sensitive to interest rates, gained on Thursday. The shares of Gap Inc. (NYSE:GPS - news), the parent of The Gap, Old Navy and Banana Republic stores, rose 1-5/16 at 34-3/8 after reporting that its first-quarter earnings increased 23 percent, in line with Wall Street estimates.
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More Quotes
and News: American Express Co (NYSE:AXP - news)
Applied Materials Inc (NasdaqNM:AMAT - news)
BANK INDEX (Philadelphia Stock Exchange) (^BKX - news)
Cisco Systems Inc (NasdaqNM:CSCO - news)
DJ INDU AVERAGE (Dow Jones & Company Inc) (^DJI - news)
Gap Inc (NYSE:GPS - news)
Intel Corp (NasdaqNM:INTC - news)
JP Morgan & Company Inc (NYSE:JPM - news)
Motorola Inc (NYSE:MOT - news)
NAS/NMS COMPSITE (NASDAQ Stock Exchange) (^IXIC - news)
S&P 500 INDEX (Standard & Poor's Corp) (^SPX - news)
SEMICONDUCTOR (Philadelphia Stock Exchange) (^SOXX - news)
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