Dow Posts 3.75 Gain to Extend Rally; Composite Rises .47

The stock market managed to post a modest gain today, extending the rally that has carried the Dow Jones industrial average to its highest levels since the crash of 1987.

The Dow’s average of 30 industrials rose 3.75 to 2,194.29, finishing the week with a net gain of 25.72 points.

Advancing issues outnumbered declines by nearly 2 to 1 on the New York Stock Exchange, with 971 up, 509 down and 477 unchanged.

Big Board volume totaled 161.33 million shares, against 174.04 million in the previous session.

The NYSE’s composite index gained .47 to 157.96.

Traders had spent the week in anticipation of today’s Labor Department report on the civilian unemployment rate, which dropped to 5.3% in December from 5.4% the month before. Accompanying data showed a 279,000 increase in nonfarm payroll employment.

The report, released before the NYSE opened, signalled persistent strength in the economy and did nothing to relieve expectations on Wall Street that the Federal Reserve might tighten credit further in its campaign to keep inflation from reviving.

The numbers were pretty much in line with advance estimates on the Street, however, and thus were no great surprise to traders.

Analysts said portfolio managers at investing institutions were continuing to buy stocks to put some of their large cash reserves to work at the start of a new year.

Bond prices were mixed at midday today after the Labor Department released its report showing that the civilian unemployment rate fell in December.

The Treasury’s closely watched 30-year bond was up 3/32 point, or nearly $1 for every $1,000 in face value, around midday. Its yield, which moves in the opposite direction from its price, was holding at 9.08%.

Analysts said although the Labor Department figures were in line with expectations, bond investors were focusing on figures showing that average wages remained flat at an average of $9.45 an hour.

“That gives some support to the notion that we have a strong economy but it hasn’t set off a new inflationary spiral yet,” said Carol Stone, an economist with Nomura Securities.

In the secondary market for Treasury bonds, prices of short-term and intermediate government issues were down between 1/32 and 1/16 point, and long-term issues were unchanged to 3/32 point higher, according to the financial information service Telerate Inc.

The federal funds rate, the interest on overnight loans between banks, was quoted at 9% at around midday, up from 8 15/16% late Thursday.