Dow Gains 38.38 as Stocks Hit New Highs in Busy Trading

Stock prices surged to new highs on Thursday, continuing a dramatic rebound from what some had read as an ominous drop early in the week.

The Dow Jones average of 30 industrial stocks posted its fifth-largest point gain ever, advancing 38.38 points to close at a record 1,919.71.

The Dow gained nearly 50 points in two trading days after a 28-point loss on Tuesday that had stirred predictions that investors were forsaking stocks for precious metals and other investments.

Trading volume rose sharply--to 189.42 million shares on the New York Stock Exchange from 154.31 million shares on Wednesday. Stocks rising in price outnumbered those declining by a 3-to-1 margin.

Thursday’s advance was driven in part by program stock buying connected to stock index futures arbitrage, but market analysts also noted strong advances in transportation, retail, oil, high-technology and chemical stocks that were purchased for their fundamental values.

Also setting records were the Standard & Poor’s 500-stock composite index, which closed at 253.83, up 3.75, and the NYSE composite index, which gained 2.01 points to close at 145.75. The Dow Jones transportation average spurted 20.63 points to 790.13, its third-best gain ever, although it still ended below its record close of 830.84 reached last March 31.

The Wilshire index of 5,000 equities closed at 2,575.646, up 32.049.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 219.57 million shares.

The NASDAQ composite index for the over-the-counter market gained 2.15 to 381.03. At the American Stock Exchange, the market-value index closed at 277.02, up 3.60. Large blocks of 10,000 or more shares traded on the NYSE totaled 3,559, compared to 2,598 on Wednesday.

Some market watchers interpreted the day’s gains as a sign that investors believe that favorable economic developments, such as falling interest rates and a weaker dollar, will boost earnings of many companies over the next several quarters.

Eugene Peroni, director of technical analysis for Bateman Eichler, Hill Richards in Los Angeles, said the run-up of precious metal prices and the simultaneous drop in stock prices Tuesday reflected “fear that we’d be right back in an inflationary environment suddenly. But this change in the market indicates that investors have taken a look at things and believe corporate earnings should turn the corner soon.”

He said investors seem to be shifting toward stocks that would perform better in a favorable business cycle, including high-technology companies, other makers of capital goods and chemical companies. They seem also to be moving away from a strategy that led them to accumulate stocks of banks, savings and loans and insurance companies on the theory that financial services companies would benefit from falling interest rates, according to Peroni.

“The market had gone about as far as it could on interest-rate-related factors,” he said.

Airline stocks were helped, analysts said, by World Airways’ plans to halt many flights. That announcement, coupled with Frontier Airlines’ decision to seek bankruptcy court protection, suggested to some investors that the bigger airlines are headed for easier times, said William M. LeFevre, an analyst with Purcell, Graham & Co.

“As the upstarts throw in the towel, the bigger guys will have life a bit better,” he said.

UAL, parent of United Airlines, was up 1 at 58, while Delta rose 1 to 43 and Pan Am 1/8 to 5 5/8.

Retailing stocks were given a boost by favorable monthly sales reports by most of the big retailers, news of a takeover offer from Campeau Corp. for Allied Stores and a favorable recommendation by Jeffrey Edelman, retail analyst with the Drexel Burnham Lambert investment house. Edelman said a strong back-to-school shopping season may be ahead.

Allied was up 10 3/4 to 59 3/8 while K mart rose 1 5/8 to 52, J. C. Penney 2 3/8 to 78 and Federated Department Stores 3 5/8 to 86 7/8.

Oil-related stocks rose as oil prices continued to firm. They received added support in a recommendation from C. J. Lawrence analyst Fred Leuffer Jr., who said in a report that OPEC members have so far stuck to production quotas that were recently set by the cartel.

Atlantic Richfield rose 2 3/8 to 60 5/8, Exxon 1 3/4 to 70 3/4 and Mobil 1 1/2 to 38 3/4. Driller Helmerich & Payne rose 2 7/8 to 22 7/8, while the oil services firm Halliburton rose 1 1/2 to 22 3/8. Schlumberger gained 7/8 to 34.

Rorer Group Gains

Computer stocks were also strong. IBM jumped 3 to 139 3/8, Digital Equipment 2 5/8 to 104 and Cray Research 3 to 87 5/8.

Rorer Group, rumored to be a takeover candidate, rose 2 5/8 to 46 3/8.

In the bond market, prices fell slightly in volatile trading, which analysts attributed to rumors about August unemployment figures and a possible high-level Japanese financial mission to Washington.

The Treasury Department’s key 30-year bond ended the day about a half-point lower, or $5 for each $1,000 in face amount, and its yield rose to 7.43% from 7.38% late Wednesday.

Ryland Chase, senior vice president at the New York investment firm Bull & Bear Group, said the bond market “seems to be one that’s buffeted by rumors which don’t seem to amount to much. It’s just kind of fluctuating around.”

Analysts said that most of the activity was confined to professional traders, based largely on unsubstantiated word that last month’s unemployment figures, to be released today by the Labor Department, would show a lower jobless figure, suggesting a stronger economy.

In the secondary market for Treasury bonds, prices of short-term governments fell about 3/16 point, intermediate maturities fell point and long-term issues were down about 1/2 point.

In corporate trading, industrials and utilities fell about point in light dealings.