Dow Up 31.48 as Fed Holds Lid on Discount Rate : End-of-Year Rally, Low Stock Prices Helped Fuel the Surge, Analysts Say

Stock prices advanced broadly Monday, with the Dow Jones industrial index climbing more than 30 points after a rumored increase in interest rates by the Federal Reserve did not materialize.

Some traders had expected the Fed to increase its closely watched discount rate in a bid to reduce inflation.

The Fed has been considered likely to push up the key rate following government figures showing a strong economy. Major banks pushed up their prime lending rate last week.

The Dow Jones index of 30 industrial stocks rose 31.48 to 2,123.76.

Advancing issues outnumbered declines by about 12 to 7 in nationwide trading of New York Stock Exchange-listed stocks. Volume on the floor of the NYSE came to 144.66 million shares, up from Friday’s 124.61 million.

‘Santa Clause Rally’

Bond prices and the dollar also were firm, relieving the pressure that higher interest rates have had on stocks recently.

Some traders noted that Wall Street often benefits from a year-end rise dubbed “the Santa Claus Rally.”

“It’s part of a year-end rally,” said Robert Robbins, stock market strategist at Robinson Humphrey Co. “Maybe it’s also reaction to the Fed not hiking the discount rate this morning--this was as good a day as any for the Fed to raise.”

Alfred Goldman, an analyst with A. G. Edwards & Sons Inc. in St. Louis, said investors who were expecting a year-end stock rally might be doing some early shopping, but the specter of rising interest rates has not vanished from Wall Street--even if it was pushed into the background Monday.

“Meanwhile, the major sword of Damocles hanging over the market is the fact that interest rates remain very high,” Goldman said.

Analysts said much of the impetus for the rally came from the low stock prices. They said stocks of many blue chip firms with good earnings prospects had become so cheap that it was hard for investors to resist them.

“We’ve had so much bad news lately, but the market has refused to buckle under. Maybe people thought it was time to do some bargain hunting,” said market analyst Hildegard Zagorksi of Prudential-Bache Securities Inc.

Long Bond Rises

In U.S. credit markets, bond prices posted some modest gains, helped by firmness in the dollar, a decline in gold prices and some bargain hunting in the wake of last week’s sharp selloff.

The Treasury’s bellwether 30-year bond rose 3/8 point, or $3.75 per $1,000 face amount. Its yield, which moves inversely to its price, fell to 9.12% from 9.16% late Friday.

The federal funds rate, the interest on overnight loans between banks, was quoted at 8.563%, unchanged from late Friday.

In foreign trading, Tokyo stock prices slumped on worries about a sudden deterioration in Emperor Hirohito’s health, brokers said. The 225-share Nikkei index ended down 50.82 points, at 29,614.68.

Share prices also finished slightly lower in an edgy session on the London Stock Exchange. The Financial Times 100-share index closed off 3.4 points at 1,761.6.