Blue-chip stocks closed higher in New York yesterday as strong sales at the US's largest retailers reminded investors that economic growth was not always bad news. At the end of trading on Wall Street, the Dow Jones Industrial Average was up 85.80 points, or by 0.8 per cent, at 10,663.69.

Stock trading has been especially volatile since May 18th, when the Federal Reserve warned it would raise interest rates if it determined that inflation had crept into the booming US economy. Since then, the market has turned on every new sign of inflationary pressures. Continued signs of growth - ordinarily a boon to stocks - have unnerved investors, who fear higher interest rates will cut into the profits of major US corporations.

Big retailers were mostly higher yesterday after reporting stronger-than-expected sales in May. The market also gained support from a Commerce Department report that showed orders to US factories for manufactured goods fell 1.2 per cent which suggested that if the Fed raised rates, the increase would be a modest quarter point.