Financial Markets                      06/11 15:32

   

   NEW YORK (AP) -- U.S. stocks rallied to their best day in two months, and 
oil prices fell Thursday after President Donald Trump called off his threat to 
bomb Iran in the evening. That raised hopes for a potential deal that could get 
the global flow of oil going again.

   The S&P 500 jumped 1.8%, coming off a back-to-back drop that had yanked it 
back to where it was in early May. The Dow Jones Industrial Average leaped 929 
points, or 1.9%, and the Nasdaq composite rallied 2.5%.

   Stocks immediately veered higher in midday trading after Trump said on his 
social media network that "discussions with the Islamic Republic of Iran have 
been brought to the highest level of Iranian leadership and approved" and that 
the time and place of a signing will "be announced shortly."

   A deal to end the war with Iran could reopen the Strait of Hormuz and allow 
oil tankers to carry crude again from the Persian Gulf to customers worldwide. 
The price for a barrel of benchmark U.S. crude sank 2.6% to $87.71. Brent 
crude, the international standard, fell 2.9% to $90.38, though it's still above 
its roughly $70 price from before the war.

   Worries had been high because the United States and Iran launched attacks 
over the past several days threatening a more than monthlong tenuous ceasefire.

   High oil prices caused by the Iran war have sent inflation painfully upward, 
and a report on Thursday showed that prices at the U.S. wholesale level 
increased by more in May than economists expected. The effect is worldwide, and 
the European Central Bank on Thursday became the first major central bank to 
raise interest rates in response.

   Higher rates can keep a lid on inflation. But they also slow economies and 
undercut prices for all kinds of investments, including stocks and 
cryptocurrencies. They hit investments seen as the most expensive in 
particular, and some critics are calling the artificial-intelligence industry a 
bubble where investment inflated too far.

   Big swings for AI stocks have been yanking the U.S. stock market up and down 
over the last week, as they went from roaring to records to suddenly turning 
lower. The big concern is whether such stocks shot too high, too fast because 
of AI mania, and their careening moves have sometimes reversed direction by the 
hour.

   AI stocks had already been rolling back up their roller coaster early 
Thursday, before Trump made his announcement on Iran.

   Marvell Technology climbed 11.1%. It's coming off a manic stretch where it 
plunged 16.7%, soared 9.6% and then fell more than 5% for two straight days. 
Just before that, it had a one-day surge of 32.5% that was its best in history 
when Nvidia CEO Jensen Huang suggested it could be "the next trillion-dollar 
company." It was worth a bit more than $190 billion at the time.

   Companies involved in the making of chips, meanwhile, jumped to some of the 
market's biggest gains. Lam Research leaped 12.7%, and KLA climbed 12.9%.

   They helped offset an 8.5% drop for Oracle. It reported a stronger profit 
for the latest quarter than analysts expected, but it also said it expects to 
raise $40 billion in cash this fiscal year through borrowing and sales of its 
stock. That comes after it raised $48 billion last fiscal year to help pay for 
AI investments.

   Other companies' stocks have also been punished recently for announcing 
heavy spending on AI, as the question remains whether such investments will 
produce the profits and productivity that AI proponents are promising.

   All told, the S&P 500 jumped 127.31 points to 7,394.30. The Dow Jones 
Industrial Average rose 929.97 to 50,848.75, and the Nasdaq composite rallied 
640.16 to 25,809.66.

   In the bond market, Treasury yields eased sharply as falling oil prices 
meant less upward pressure on inflation. The yield on the 10-year Treasury 
dropped to 4.45% from 4.55% late Wednesday, which is a significant move for the 
bond market.

   A sustained drop in oil prices could allow the Federal Reserve to keep its 
main interest rate on hold this year, instead of hiking it as many traders 
suspected it may have to because of high inflation and a solid U.S. job market. 
Following Trump's announcement, traders ratcheted back their bets for a 
possible increase to the federal funds rate this year, according to data from 
CME Group.

   The Fed could even resume its cuts to interest rates under its new chair, 
Kevin Warsh, if inflation pressures subside enough. Trump appointed Warsh, and 
Trump has been loudly calling for lower interest rates.

   Stocks of smaller companies can feel the biggest benefit from easier 
interest rates because many need to borrow money to grow, and the Russell 2000 
index of the smallest U.S. stocks jumped a market-leading 3%.

   In stock markets abroad, indexes rose modestly in Europe following a mixed 
finish in Asia.

   London's FTSE 100 rose 0.5%, and Hong Kong's Hang Seng fell 0.7% for two of 
the world's bigger moves.

   ___

   AP Business Writers Matt Ott and Elaine Kurtenbach contributed to this 
report.

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