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. Last Updated: 07/27/2016

Dow Jones Soars, World Markets Follow

LOS ANGELES -- The stock market climbed to record heights Friday for the first time since May, as interest-rate worries calmed in the wake of a benign inflation report.

The Dow Jones industrial average surged 66.58 points to a record 5,838.52 Friday and continued its rise Monday, marking the blue-chip index's complete recovery from a steep summer sell-off and defying skeptics who had predicted that Americans' love affair with stocks was ebbing.

"What we're seeing is that the public is coming back and buying stocks again," not only through mutual funds but individually, said Laszlo Birinyi, head of the investment firm Birinyi Associates in Greenwich, Connecticut.

Boosted by a strong showing on Wall Street, leading German and British stocks closed at record highs Monday, and Britain's FTSE 100 index looked set to break the 4,000 level (Story, Page X).

The trigger for Friday's Wall Street rally was the government's report that the Consumer Price Index rose just 0.1 percent in August, well below expectations and despite the economy's surprising strength in recent months.

The Federal Reserve Board, the nation's central bank, had been widely expected to raise short-term interest rates later this month to slow the economy's growth. But Fed governors have been openly debating whether growth should be restrained if there are no concrete signs that the economy is advancing so quickly as to drive up prices for goods and services.

"The stock market is saying the Fed may not raise [rates] now," said David Shulman, investment strategist at the brokerage Salomon Bros. in New York.

At the same time, analysts noted that the stock market's rebound from its steep July decline has also overcome many other worries that were expected to be major obstacles to new highs in share prices, including uncertainty over the presidential election and the revival of tensions between the United States and Iraq.

Despite a sharp jump in oil prices in recent weeks, the stock market failed to be shaken by Mideast concerns. "Saddam Hussein is just not viewed as a credible threat" by investors, Shulman said.

Perhaps most important to the bull market's resurgence, however, is that individual investors have continued to feed billions of dollars into stock mutual funds since the market's July downturn, indicating that the 1990s mentality of buying into stock market declines remains intact. Many analysts say that without higher interest rates, stocks have little real competition from bank CDs or bonds.

That's why the Fed's intentions are key now. Friday's mild inflation report was more ammunition for Fed board members who want to refrain from tightening credit just yet, analysts said.