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Inflation remained tame in January, according to the highly anticipated consumer price index, which ignited a rally in U.S. Treasury securities. Traders were also buoyed by a moderately successful auction of two-year notes, which were bought by an acceptable percentage of foreign banks and big investors -- key to the success of any bond auction. Wednesday's events sent prices of Treasuries up -- especially long-term paper -- and their yields, which move in the opposite direction of prices, went down. The decline in yields, however, did not affect mortgage rates today. They remained close to Tuesday's levels.

The headline number for the consumer price index, or CPI, showed prices rising 0.7 percent -- higher than the 0.5 percent, which had been forecast by analysts. Once again, energy was blamed for the increase, as it rose 5 percent in January. Also up were costs for food and housing, which each climbed 0.5 percent.

The core CPI, which excludes volatile food and energy prices, rose only 0.2 percent -- in line with estimates that matched December results. The core index showed once again that increases in energy costs are not making their way to the consumer -- at least not yet. There was nothing in the report to tip the scales in favor of aggressive rate hikes by the Fed, as underlying inflation appears to remain controlled. The financial markets rallied on this finding.

Markets celebrate CPI, falling oil prices

With inflation worries pushed aside -- at least until next week -- and oil prices heading back down to the $61-per-barrel mark, Wall Street put up some big numbers. The Dow Jones industrials closed at their highest level in almost four-and-a-half years, while the Nasdaq and Standard & Poor's 500 posted big gains.

Home builders, led by Toll Brothers and K. Hovnanian, sent the Dow Jones home construction index climbing, and banks did very well, as did airlines. On the tech side of the street, there were strong gains by Internet stocks, networkers and semiconductors, but Intel did not participate in the rally. The chip giant lost 2.3 percent after a downgrade and price target reduction by a brokerage that said Intel is losing market share and may have to cut prices.

On the other hand, Martha Stewart Omnimedia rose close to 13 percent after turning a fourth-quarter profit thanks to increased advertising sales.

The Dow Jones industrials recouped Tuesday's losses, but there was some volatility in the last few minutes of trading. When the dust settled, Pfizer led the pack with a 2.2 percent gain, while financial stocks American Express and JP Morgan closed up 1.8 percent and 1.7 percent, respectively. Procter & Gamble added 1.7 percent, and Boeing closed with gain of 1.8 percent. An additional six components rose in excess of 1 percent each.

Intel led the Dow in losses. DuPont was next in line with a 1.9 percent dip, while Verizon was off 1.1 percent.

The Nasdaq composite put up some big numbers with the help of Yahoo! and Qualcomm, which gained 2.4 percent and 2 percent, respectively. Other big caps participating in the rally included IBM, Oracle, Sun Microsystems and Ericsson, which each gained slightly more than 1 percent. A number of small biotechs and software companies also had a good day.

As of 4 p.m., EST:

The Dow Jones industrial index closed up 68.11 points (+0.62 percent) to 11,137.17; the Nasdaq composite gained 20.21 points (+0.89 percent) to 2,283.17, and the Standard & Poor's 500 index rose 9.63 points (+0.75 percent) to 1,292.67.

The 30-year Treasury bond closed up 26/32 in price with the yield falling to 4.48 percent, from 4.53 percent on Tuesday.

The 10-year Treasury note closed up 11/32 in price with the yield falling to 4.53 percent, from 5.56 percent on Tuesday.

The five-year Treasury note closed up 4/32 price with the yield falling to 4.56 percent, from 4.58 percent on Tuesday.

The two-year Treasury note closed up 2/32 in price with the yield falling to 4.67 percent, from 4.7 percent on Tuesday.

At 4 p.m. EST, average mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year conventional fixed-rate mortgage was at 6.001 percent, down from 6.003 percent on Tuesday.

The 15-year conventional fixed-rate mortgage was at 5.591 percent, up from 5.589 percent on Tuesday.

Coming up:

First-time jobless claims for the week ended Feb. 18 is the only report scheduled for release on Thursday. The forecast is for a sharp decline to 285,000 claims after a spike of 20,000 to 297,000 the previous week. Because this is the sole report on the schedule, unexpected moves one way or the other could influence the Treasury markets.

Today's slight decline in Treasury yields will not likely have a big impact on mortgage rates, which will probably hold fairly steady into Thursday morning.

Carolyn Siegel

Carolyn@interest.com

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