Dow Index Gains 8.29 in Late Rally : Drop in Interest Rates Offsets Negative Economic Report

Fresh declines in interest rates, including a prime rate reduction by some of the nation’s biggest banks, helped the stock market post a modest advance Tuesday despite the emergence of new signs of economic weakness.

Some analysts said investors’ concerns that the economy could be headed into a recession that would erode corporate profits restrained what may otherwise have been a more enthusiastic response to the latest rate reductions.

The Dow Jones index of 30 industrials, which fell 13.59 on Monday, finished up 8.29 at 1,952.92.

But the market’s best-known index had traded below Monday’s close for most of the day, down nearly 17 points at mid-morning, before it pushed into positive territory in the last two hours of the session.

Jack Baker, head of block trading at Shearson Lehman Hutton, said the news of the rate declines “took a little while to work its way through the stock market.”

Advancing issues outpaced decliners by a margin of about 8 to 7 among issues listed on the New York Stock Exchange, with 856 up, 673 down and 459 unchanged.

The NYSE composite index rose 0.28 to 143.61.

Big Board volume slowed to 164.92 million shares from 210.66 million shares on Monday.

Before the market opened, the government reported its chief economic forecasting gauge fell in December for the third straight month.

The Commerce Department’s index of leading economic indicators edged down 0.2% in December after falling 1.2% in November and 0.1% in October.

The government also reported sales of new homes fell 6.2% in December, after a 2.4% drop in November.

Some analysts say the three-month decline in the leading indicators may signal a recession or an impending slowdown in economic growth that could dim the outlook for corporate profits.

But others say a slowdown could pave the way for lower interest rates, making returns on stocks more competitive with those on bonds.

Traders got a taste of those lower interest rates as bond prices rallied throughout the day, sending the yields on some long-term government bonds down by as much as one-tenth of a percentage point to 8.3%.

In addition, several major banks across the country lowered their prime lending rates by one-quarter of a percentage point to 8.5%, the lowest level since last September.

Hugh Johnson, chief investment officer for the brokerage First Albany Corp., said such declines would normally trigger “a much stronger positive reaction from the stock market.”

Alfred E. Goldman, director of technical market analysis for the brokerage A. G. Edwards & Sons Inc. in St. Louis, said the stock market’s subdued response indicates “a market that is worn out, tired and needs to pull back further.”

Federated Department Stores led the NYSE’s most-active list, falling 2 1/2 to 51. The Canadian firm Campeau Corp. has offered $47 a share for Federated.

International Business Machines fell 1/8 to 109 7/8. Several other technology stocks were lower, as Hewlett Packard fell 1 3/8 to 54 3/4, Honeywell dropped 5/8 to 62 3/8 and Digital Equipment fell 2 to 120.

First Boston fell 1 7/8 to 24 3/8. The leaders of its investment banking department resigned to form their own firm, citing policy disputes over a companywide shake-up announced last month.

Manhattan Industries was the biggest percentage gainer on the NYSE, rising 6 to 17 1/2, a 52% price gain. It is the target of a $16-a-share takeover bid.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 192.64 million shares.

Standard & Poor’s index of 400 industrials rose 0.73 to 291.83, and S&P;’s 500-stock composite index was up 0.53 at 255.57.

At the American Stock Exchange, the market-value index rose 0.41 to 270.14. The NASDAQ composite index for the over-the-counter market closed at 347.19, up 0.99.

The Wilshire index of 5,000 equities closed at 2,513.585, up 7.063.

Large blocks of 10,000 or more shares traded on the NYSE totaled 3,399, compared to 3,522 on In foreign trading, share prices on the London Stock Exchange finished lower Tuesday as a weak early trend on Wall Street curbed earlier gains in London.

The Financial Times-Stock Exchange 100-stock index closed off 2.5 points at 1,774.4. Earlier, the index was up 7.6 points.

In Tokyo, stocks closed mixed after sluggish trading. The Nikkei index of 225 selected issues fell 60.11 points to close at 23,672.21.