Cost of oil falls: Stocks close sharply higher

Oil prices bounced back above $113 a barrel in volatile trading Friday after falling sharply from the early-week record near $120 a barrel.

Light, sweet crude for June delivery on the New York Mercantile Exchange rose 54 cents to $113.06 a barrel in electronic trading by midday in Europe, up from a low of $111.78 earlier in the session. The contract fell 94 cents to settle at $112.52 a barrel on Thursday.

A stronger U.S. dollar and short covering by professional traders who bought back contracts as prices recovered after betting earlier that prices would fall further were both seen affecting the market.

Wall Street shot higher Thursday as investors, while anticipating another dismal jobs report Friday, viewed the rising dollar and falling oil prices as promising signs for the economy. The Dow Jones industrial average rose nearly 190 points to finish above 13,000 for the first time since Jan. 3.

The dollar rose on better-than-expected economic data and the Federal Reserve’s apparent resolve to monitor inflation. The Commerce Department said consumer spending rose 0.4 percent in March, more than predicted, and the Institute for Supply Management said U.S. manufacturing contracted in April by a bit less than anticipated.

The readings were not all positive — consumer spending rose mainly due to rising energy and food prices. The ISM’s report also indicated that companies are hurting from climbing costs.

But the dollar, which has recently strengthened after a protracted decline, rallied anyway, pushing the euro down more than 1 percent to $1.5461 in late trading. Trading was thin, with major currency markets in London and elsewhere closed for the May Day holiday, but the dollar’s advance helped crude oil fall briefly near $110 a barrel and then settle at $112.52. That alleviated some of the inflation-related anxieties in the market, given that crude recently traded at a record near $120 a barrel.

“I don’t know if it’s all turned around, but I think oil got out of control,” said Todd Leone, managing director of equity trading at Cowen & Co.

The dollar’s rise comes a day after the Fed lowered key interest rates by a quarter-point, but suggested the economy should keep growing moderately, while inflation is the growing concern.

“What we’re seeing is that maybe the economy is not falling off a cliff, but perhaps leveling off,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. “I think the Fed (rate-cutting campaign) is over with, even though the Fed’s statement didn’t say that.”

The economic assessment statement accompanying the Fed’s rate decision was unclear about its policy going forward, but it has been widely believed that the central bank would pause following a string of cuts that lowered rates by 3 percentage points since last summer.

On Thursday, banks, homebuilders, chip makers and retailers surged, after getting battered earlier this year due to worries about the mortgage crisis and its effect on the global economy.

According to preliminary calculations, the Dow rose 189.87, or 1.48 percent, to 13,010.00, after briefly rising more than 200 points.

Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 23.75, or 1.71 percent, to 1,409.34 — its first settlement above 1,400 since Jan. 14. The Nasdaq composite index climbed 67.91, or 2.81 percent, to 2,480.71, its highest close since Jan. 10.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.75 percent from 3.73 percent late Wednesday.