Stocks Advance, Led by Techs

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Ongoing strength in headline inflation should keep the Fed's policy committee hobbled by ongoing inflation risk, despite the growing focus among the Fed and the market on downside economic risk, Action Economics said. The Fed is still likely to ease rates at the March meeting, but the heightened pace of inflation in the first-quarter should eventually cap the Fed's willingness to continue to ease policy if it sees signs that the fiscal stimulus plan is beginning to have an impact on economic growth, Action Economics said.

Mortgage applications fell 22.6% on a seasonally adjusted basis for the week ending Feb. 15, the Mortgage Bankers Assn. said in a report. On an unadjusted basis, the Market Composite Index dropped 21.2% from the previous week and was up 33.9% from the same week one year earlier.

The Refinance Index fell 27.9% to 3533.8 from 4901.5 the prior week and the seasonally adjusted Purchase Index decreased 11.5% from one week earlier.

Investors will have two more economic reports to weigh Thursday: weekly initial jobless claims and the Philadelphia Fed index on manufacturing conditions for February.

NYMEX March WTI crude oil futures, which fell to $99.25 per barrel in early trading Wednesday, rallied to gain 73 cents to a record $100.74 close in what dealers said was a classic short squeeze.

Among other stocks in the news on Wednesday, 3COM Corp.(COMS), affiliates of Bain Capital Partners and Huawei Technologies have withdrawn their joint filing to the U.S. Committee on Foreign Investment in U.S. concerning a proposed merger deal, but the parties remain committed to continuing talks. Last September, 3COM's board unanimously approved a definitive merger agreement under which the company would be acquired by affiliates of Bain Capital Partners for about $2.2 billion in cash.

Hewlett-Packard reported non-GAAP earnings of 86 cents per share in its first quarter, vs. 65 cents a year ago, on a 13% revenue rise. The company raised its outlook, now seeing second-quarter revenue of $27.7 billion to $27.9 billion and non-GAAP earnings of 83 to 84 cents per share. For fiscal 2008, it expects $113.5 billion to $114 billion in revenue and a profit of $3.50-$3.54 per share, citing anticipated cost reductions and share gains in key markets. Standard & Poor's reaffirmed its buy rating and raised its earnings estimate and target price.

Another cause for pessimism was news that KKR Financial Holdings (KFN), the publicly traded affiliate of the private equity group, has delayed paying back billions of dollars of commercial paper for the second time and has begun a new round of restructuring talks with creditors less than six months after a rescue rights issue.

Credit Suisse downgraded its recommendation on the telecoms services group to market weight from overweight, and lowered its ratings on shares of AT&T (T) and Verizon (VZ) to neutral from outperform, citing a potential wireless price war and macroeconomic weakness.

NutriSystem (NTRI) shares tumbled after the company reported a decline in fourth quarter earnings per share from continuing operations, to 33 cents from 54 cents one year earlier, as product transition costs and stock-based compensation expenses offset a 3% revenue rise.

European indexes finished lower on Wednesday. In London, the FTSE 100 index fell 1.23% to 5,893.60. In Paris, the CAC 40 index slipped 1.49% to 4,812.81. Germany’s DAX index was off 1.47% at 6,899.68.

Asian markets closed lower. Japan’s Nikkei 225 index dropped 3.25% to end at 13,310.37. In Hong Kong, the Hang Seng Index lost 2.21% to trade at 23,590.58.

Treasury market

Treasuries traded mixed Wednesday afternoon

as the bond market digested higher January CPI and minutes to the January FOMC meeting that were generally downbeat about the economy. The 10-year note finished unchanged at 96-23/32 for a yield of 3.90%. The 30-year bond rose 21/32 to 96-02/32 for a yield of 4.62%.

Bogoslaw is a reporter for BusinessWeek's Investing channel .