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Falling Interest Rates Help Dow to Record High

From Times Wire Services

The stock and bond markets again rolled up solid gains Wednesday, carrying the Dow Jones industrial average to a record closing high as interest rates dropped.

The Dow Jones average of 30 industrials climbed 6.84 to 1,375.57, surpassing the previous closing peak of 1,369.29 that it reached Oct. 17. The average rose 8.74 on Tuesday.

Volume on the New York Stock Exchange reached 120.36 million shares, up from 110.60 million on Tuesday.

Interest rates tumbled in the credit markets Tuesday and Wednesday, responding to the latest comments by Paul A. Volcker, chairman of the Federal Reserve, on the state of the economy.

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Volcker said in a speech Monday night in Toronto that recent rapid growth in the money supply doesn’t point to a revival of inflation. He also said that, “despite a relatively accommodative monetary policy, interest rates remain high historically.”

Some Wall Streeters interpreted those remarks as a signal that the Fed might soon relax its credit policy further in an effort to stimulate faster growth of the economy.

Excitement Tempered

In Wednesday’s activity, prices of long-term government bonds, which move in the opposite direction from interest rates, posted gains of $5 to $10 for every $1,000 in face value.

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Excitement about the new high in the Dow was tempered somewhat by the fact that other, broader market measures remained below the record levels that they reached in midsummer.

There were just 58 Big Board issues that reached 52-week highs Wednesday, compared to 26 new lows.

Securities industry stocks had a good day in response to the rallies taking place in stock and bond prices. Merrill Lynch rose 1 to 29 1/2, American Express 1 1/8 to 45 7/8, Phibro-Salomon 1 to 38 5/8 and Paine Webber 1/2 to 28 1/8.

U.S. Steel dropped 3/4 to 26 3/4 and Texas Oil & Gas fell 1 3/8 to 16 1/2. The companies announced a definitive merger agreement calling for the exchange of 0.6333 of a U.S. Steel share for each share of Texas Oil & Gas.

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Bethlehem Steel slumped 1 7/8 to 13. The company reported a third-quarter loss, projected more red ink for the fourth quarter and omitted its dividend.

Chesebrough-Pond’s lost 2 1/2 to 40 5/8. The company, which has been the subject of takeover speculation, said it had had no discussions with any other party about a possible merger.

Pharmaceutical issues, which have drawn a boost lately because of the prospective benefits of a declining dollar for their overseas business, posted more gains. Merck, Pfizer, Smithkline Beckman and Upjohn each advanced a point or more.

Although the bond market finished with with solid gains, it was still below the session highs.

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At the second auction of the Treasury’s three-stage financing operation, interest rates tumbled.

The Treasury sold $6.27 billion of six-year, 11-month notes at an average yield of 9.75%, the lowest rate since notes of a similar maturity sold on Aug. 1, 1979, brought an average return of 9%.

The yield on the new issues was down from 10.4% on notes auctioned June 26.

Demand for the new Treasury issues was fairly keen, with the Treasury receiving $19.97 billion in bids.

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However, it did not match the avid demand at the first auction Tuesday, when the Treasury received more than $35.3 billion in bids for new three-year, 11-month notes and accepted $6.78 billion. The Treasury was scheduled to finish the financing operation today with an auction of $4.75 billion in 19-year, nine-month bonds.

Mitchell Held, a vice president and economist at Smith Barney, Harris Upham & Co., said investors have been eagerly awaiting the Treasury auctions.


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