Bond Optimism Pushes Dow to 4th-Biggest Gain : Index Rises by 51.85 as Analysts Foresee a Strong Demand for This Week’s New Treasury Offerings

A measure of optimism in the bond market helped unleash Wall Street’s fourth-largest surge in history and the biggest in two weeks Tuesday, as traders temporarily shook off worries about rising inflation and interest rates.

The Dow Jones average of 30 industrials shot up 51.85 to finish at 2,338.07, the best day for the blue chip average since a gain of 66.47 April 21.

The average jumped more than 20 points in the first half hour of trading alone. The 51.85-point advance was a rise of 2.27% in the Dow average.

Three stocks rose for every one that declined on the New York Stock Exchange, with 1,192 stocks up, 405 down and 382 unchanged. Volume rose to 192.29 million shares from the 140.61 million that changed hands in Monday’s lackluster session.

Analysts said stocks drew most of their strength from a slightly firmer dollar and a modest rebound in the bond market, where traders anticipated good demand for $29 billion in new government debt being auctioned off this week.

Computerized program trading linked to stock index futures also helped drive up prices for blue chip stocks, analysts said.

“Those are the conditions the stock market is looking for,” said Hugh Johnson, senior vice president of the First Albany brokerage.

Foreign Capital Expected

Johnson and others said the market’s attention continued to be focused on the Treasury’s quarterly refinancing, which runs through Thursday. Although traders recently expressed fears that the dollar’s deterioration in foreign exchange would dampen demand for new government issues and push interest rates higher, they appeared more confident Tuesday.

Foreign investors, especially the Japanese, were expected to be active in the Treasury sale, because yields on U.S. government issues are significantly higher than comparable Japanese investments, analysts said.

“They’re fairly confident of active participation (by the Japanese),” Bernadette Murphy of the M. Kimelman & Co. brokerage said.

The Treasury sold $10 billion worth of three-year notes at an average yield of 7.91% Tuesday and plans to sell $9.75 billion in 10-year notes today and $9.25 billion in 30-year bonds Thursday.

Bids on Tuesday’s notes were slightly lower than expected, analysts said, but the focus of the market is primarily on Thursday’s auction because Japanese investors tend to buy long-term issues. Demand is expected to pick up today and Thursday.

Dollar Closes Higher

Johnson said the markets were looking for at least 20% of the Treasury offerings to go to foreign buyers.

Robert Brusca, chief economist and senior vice president for the fixed-income division of Nikko Securities International Inc., described the first day of the auction as “sloppy,” with yield spreads larger than usual and with less aggressive bidding than in other recent Treasury sales.

In the bond market, the U.S. Treasury’s 30-year bond ended the day up about $6 per $1,000 in face value.

Meanwhile, the dollar closed higher against other major currencies in New York trading Tuesday in the wake of repeated central bank intervention. It closed at 138.85 Japanese yen, up from 138.55 yen at Monday’s close. Against the West German mark, it rose to 1.7740 marks from 1.7650.

European central banks bought the U.S. currency Tuesday in an effort to bolster its value. However, people in the currency market said the dollar remains likely to go lower.

The federal funds rate, meanwhile, was quoted at 6 5/8%, down from 7% late Monday.