Dollar Inspires Surge by Stocks; Dow Adds 16.25 : Other Indicators, Volume Expand Despite a Late Round of Profit Taking

Wall Street stocks closed higher Tuesday for the second consecutive session of the new year, but profit taking picked away at the day’s gains and some traders said the rally may be short-lived.

The Dow Jones average of 30 industrials, up more than 76 on Monday, rose 16.25 to 2,031.50.

The widely followed indicator has not sustained such levels since the historic October market crash.

Broader market indicators also rose and trading volume grew from Monday’s moderate pace, reflecting the influx of investors attempting to get a piece of Wall Street’s year-opening rally.

Advancing issues outpaced decliners by about 3 to 1 on the New York Stock Exchange, with 1,299 up, 401 down and 281 unchanged. Big Board volume totaled 209.52 million shares, up from 181.81 million on Monday.

Stocks surged higher in early trading, with the Dow industrials up nearly 50 points at one time, as investors who sat out Monday’s surprising surge entered the market in force.

Sparking the market was the dramatic rally by the dollar--aided by coordinated central bank intervention--from its record lows of early Monday and by a concurrent rally in the bond market, which pushed long-term interest rates lower.

Analysts said massive central bank support for the dollar, which moved higher against major foreign currencies, was setting the course for stock prices in early 1988.

The dollar staged strong gains with Asian, European and U.S. central banks buying dollars to reverse the currency’s long slide.

Some Doubt Momentum

The dollar’s rally and the central banks’ apparent commitment to halt its decline could indicate near-term stability for the currency, analysts said. That encourages foreign investment in dollar-denominated instruments such as stocks and bonds and lessens the inflationary danger to the U.S. economy.

But in late trading, stocks gave up much of their gains on profit taking by traders who remained wary that the underlying bear markets for stocks and the dollar were anything but over.

“I don’t see the momentum in this market . . . that we had when we started our early December rally,” said Alfred Goldman, a vice president at the brokerage A. G. Edwards & Sons in St. Louis. “We’re probably going higher, but this is still a technical rally in the framework of a bear” market.

Philip Puccio, manager of institutional trading for the firm Dillon, Read & Co., said the late downturn was expected in light of the market’s sizable recent gains and lingering shell shock from the October crash.

Sterling Drug soared 17 to 74 1/8, leading the NYSE most active list on volume of 3.73 million shares. F. Hoffmann-La Roche Co. said late Monday that it would offer $72 a share for the pharmaceutical company.

Other drug issues rose strongly on accompanying takeover speculation. Warner Lambert was up 3 to 73; Eli Lilly added 2 to 82; Pfizer rose 4 to 52 5/8, and Rorer surged 7 to 44 3/4.

Among active blue chips, IBM rose 1 1/8 to 121 7/8; American Express rose 3/4 to 24 3/4; General Electric rose to 46 3/4, and AT&T; rose to 28 1/2.

General Motors, which launched a three-day trade show to boost its corporate image, rose 1/2 to 63 3/4.

Among other auto makers, Ford rose 1 to 79 3/4 and Chrysler advanced 1 to 24.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 241.68 million shares.

The NYSE’s composite index rose 1.64 to 144.54.

Standard & Poor’s index of 400 industrials rose 3.38 to 299.71, and S&P;’s 500-stock composite index was up 2.69 to 258.63.

The Wilshire index of 5,000 equities closed at 2,526.997 up 32.061 or 1.29% from Monday’s close.

The American Stock Exchange index rise 5.03 to 271.77. The NASDAQ composite index closed at 344.07, up 5.59.

In foreign trading, Britain’s stock market closed sharply higher in reaction to the dollar’s strength and the big early gains on Wall Street. Volume was moderate.

The Financial Times Stock Exchange 100-share index rose 42.1 to close at 1,789.6 after having been up as much as 50 earlier in the day.

In Tokyo, share prices were buoyed by a rising dollar and an overnight rally on Wall Street, but concerns about the U.S. currency’s long-term outlook pulled stocks from their best levels.

The Nikkei 225-share index finished up 358.24, or 1.67%, at 21,575.28 after climbing as high as 21,713.70 earlier in the session.