(Adds U.S. market, byline; dateline previous LONDON)
By Herbert Lash
NEW YORK, Feb 20 (Reuters) - U.S. stocks rose on Wednesday,
as optimism about strong profits at computer maker
Hewlett-Packard Co <HPQ.N> outweighed concerns about a surge in
U.S. consumer prices that had earlier driven the market lower,
while shares in Europe fell on fresh worries about bank
write-downs.
U.S. government bond prices were flat, trimming gains as
the rise on Wall Street dimmed the safe-haven appeal of bonds.
The price of U.S. crude oil rose to a record high above
$100 a barrel a day after settling above $100 for the first
time, and the dollar climbed after the larger-than-expected
rise in consumer prices signaled that the U.S. Federal Reserve
may slow its campaign to cut interest rates to spur economic
growth.
Gold, which moves inversely to the dollar, fell on the
greenback's strength. Analysts, however, said gold is poised
for new record highs due to its anti-inflationary and safe-have
attributes.
"You're getting an intraday rally based on optimism with
the Hewlett-Packard results," said Jim Awad, chairman of W.P.
Stewart & Co Ltd in New York. "There's a tug of war here with
the fact that tech stocks may be be able to carry the day in
terms of earnings but all of the other news was negative."
U.S. consumer prices increased on an annual basis to an
unexpectedly strong 4.3 percent in January from an already
elevated rate of 4.1 percent the month before, the U.S. Labor
Department said.
On a monthly basis, rising food costs helped push consumer
prices up for a second straight month by 0.4 percent.
"CPI was not pretty. It really puts the Fed in a awkward
spot," said Sam Rahman, portfolio manager at Baring Asset
Management Inc in Boston.
The Dow Jones industrial average <> was up 11.23
points, or 0.09 percent, at 12,348.45. The Standard & Poor's
500 Index <.SPX> was up 2.13 points, or 0.16 percent, at
1,350.91. The Nasdaq Composite Index <> was up 6.22
points, or 0.27 percent, at 2,312.42.
U.S. investors sold shares of such bellwethers as aircraft
maker Boeing Co <BA.N>, which dropped 1.7 percent, and General
Electric Co <GE.N>, the diversified manufacturer, whose shares
shed 1.1 percent.
Blue-chip telephone operators also weighed on indexes on
worries of a price war after Verizon Wireless said it had
started offering flat-rate plans for unlimited calls.
AT&T Inc <T.N> and Verizon Communications Inc <VZ.N> fell
after analysts said Spring Nextel Corp <S.N> could undercut
their flat-rate plans with up to a 40 percent discount. For
details see, [].
In Europe, write-downs for exposure to the U.S. subprime
housing crisis at Britain's Alliance & Leicester <ALLL.L> and
at BNP Paribas, France's largest listed bank, helped push
shares lower.
BNP Paribas' fourth-quarter net profit fell 42 percent to
1.006 billion euros ($1.5 billion), in line with previous
guidance, and said it took write-downs of 898 million euros
during the quarter.
A&L, Britain's seventh-biggest listed bank, reported a
gloomy outlook and surprised investors with a warning about
rising funding costs.
The FTSEurofirst 300 index <> of top European shares
ended down 1.2 percent at an unofficial 1,322.18 points.
Declining issues outnumbered advancers by four to one.
Euro-zone government bond yields and implied interest rates
edged up after a media report suggested the European Central
Bank won't ease policy this year as much as markets expect, a
view given credence by a German steelworkers wage deal.
Coupled with rising U.S. consumer prices ensured bonds
struggled to benefit from weakness in European equities.
Stock market weakness, a key technical support level and
fears about further investment losses from exposure to "exotic
investment instruments" refueled the bid for safe-haven
government securities, analysts said.
"Rumors and fears about hedge funds or financial forms
having to realize losses due to exposure to exotic investment
instruments jolted equities and reversed a downward slide in
Treasuries," said William Sullivan, chief economist at JVB
Financial Group in Boca Raton, Florida.
In early afternoon, the price of the benchmark 10-year note
<US10YT=RR>, was off 1/32 at 96-19/32 after posting an earlier
high of 97-4/32. The 10-year yield last traded 3.91 percent, up
from a session low of 3.85 percent.
Oil retreated as investors focused on a U.S. report
expected to show crude stockpiles rose for a sixth week.
U.S. crude stocks were expected to rise by 2.3 million
barrels. The Energy Information Administration report will be
released on Thursday, a day later than usual, due to the U.S.
holiday on Monday.
Oil <CLc1> fell 65 cents to $99.36 a barrel by 1623 GMT,
having risen nearly 5 percent, or $4.51, to a record peak of
$100.10 on Tuesday. London Brent crude <LCOc1> fell $1.10 to
$97.46.
The dollar got a bit of a boost from the view that the Fed
may cut less than expected. In general, foreign exchange
markets tend to favor currencies from countries offering higher
interest rates.
(Additional reporting by Caroline Valetkevitch, Ellis Mnyandu,
Gertrude Chavez-Dreyfuss and Richard Leong in New York, Glenn
Somerville in Washington and Amanda Cooper and Alex Lawler in
London; Editing by Leslie Adler)
