THE Dow Jones industrial average flirted with new highs yesterday as the latest inflation figures eased worries that the Federal Reserve would raise interest rates sharply to slow the economy.

Other stock averages also advanced, with some moving back towards record levels for the first time since the spring.

The Dow added about 17 points, surrendering much of the day's gains in the last half hour.

The indication of benign inflation reinforced speculation that the Federal Reserve would either leave interest rates unchanged or institute only a quarter-point increase at the central bank's policy meeting on September 24th.

Tension between the US and Iraq continued to bolster oil prices but oil company stocks retreated a bit from their recent gains on concerns the issues have grown too pricey.