NEW YORK, May 31: Wall Street opens the month of June with guarded optimism, as hopes mount that the worst of the economic storm is over and that the peak has passed for surging crude oil prices.

The market is looking past the latest woes, say analysts, to a stronger economy with increasing worries about inflation.

In the holiday-shortened week to Friday, the Dow Jones Industrial Average of 30 blue-chip shares advanced 1.27 per cent to 12,638.32.

Among the other major indexes, the Standard & Poor’s 500 broad-market index rallied 1.77 per cent to 1,400.38 and the technology-studded Nasdaq composite jumped 3.19 per cent on the week to 2,522.66.

The stock market closed out the month of May with a generally positive tone. The Dow fell 1.43 percent for the month but the Nasdaq rose 4.55 per cent and the S&P increased 1.06 per cent.

The stock market’s trajectory in recent weeks has been linked to crude oil, which has been on a breathtaking surge but has shown signs of a bubble, according to analysts.

Crude hit $135 a barrel earlier this month and then retreated, leading some to bet that this was the “top” and that a retreat is coming.

New York’s main oil futures contract ended the week at $127.35 a barrel.

Easing energy costs could help support a recovery in the fragile economy in the United States, on the brink of recession, as well as in the rest of the world.

The action in oil prices suggests “that speculators are beginning to focus on the fall in demand,” according to John Wilson, analyst at Morgan Keegan.

If oil continues downward, it will be a big positive for the stock market, Wilson said.

We believe the (stock) market is on the verge of a very nice move and we would be more aggressive in our purchases, he said.

The bond market meanwhile suffered. The yield on the 10-year Treasury bond leapt to 4.046 per cent from 3.831 percent a week earlier and that on the 30-year bond surged to 4.707 per cent against 4.557 per cent. The rise in yields means a decline in bond prices.

Investors still face a number of worries, according to Ed Yardeni of Yardeni Research, who argues that aggressive moves by the Federal Reserve to counter the US economic slowdown have pushed up inflation and rattled the bond market, which could hurt stocks.

The bond vigilantes are becoming increasingly concerned that the Fed’s unprecedented moves to flood the financial system with liquidity since March may be setting the stage for a rebound in economic growth and inflation, he said.

Scott Anderson, senior economist at Wells Fargo, agrees that long-term investors are looking ahead to an economic recovery as well as potential inflation problems.—AFP