Good News on Inflation Sends Stocks Up 56.82 to Post-Crash High of 2,439.70

Elated by better-than-expected inflation news, investors raced into the stock market Friday, triggering the strongest rally in nearly a year and lifting the Dow Jones index 56.82 points to its highest point since the October, 1987, crash.

The surge began at the opening bell, after the government reported that wholesale prices rose only 0.4% in April. The increase, below an expected 0.7% to 0.9%, prompted a decline in interest rates and buoyed hopes that inflation has moderated.

“People came in prepared to buy stocks cheap on bad news,” said Michael Metz, managing director and market analyst at Oppenheimer & Co., a New York investment bank. “But (the economic news) created a great sense of urgency.”

The Dow Jones industrial average reached 2,439.70, well ahead of the previous post-crash high of 2,418.99 on April 27. The gain was the biggest for a single day since the average leaped 74.63 points on May 31, 1988.

Blue Chips Strong

Analysts pointed to solid gains across the board, but particularly in blue chip stocks. Issues that advanced outnumbered declining stocks by a ratio of about 10 to 3 on the New York Stock Exchange, with 1,214 issues up, 353 down and 408 unchanged. Big Board trading was heavy, with more than 221 million shares changing hands.

“We do have an institutional buying rampage,” said Eugene E. Peroni Jr., director of technical research for Janney Montgomery Scott in Philadelphia, shortly before the market’s close.

“Portfolio managers . . . might not have any real conviction with the market, but they are being pressured to make commitments,” Peroni said. “Managers are throwing up their hands and saying, ‘We have to have equities.’ ”

“If you consider the longer-term trend in the market, it has been very positively biased. This suggests the market is looking ahead toward a brighter economic outlook.”

Both Peroni and Metz said they expect the market to continue its upward march next week, with Metz anticipating a further rise of 100 points and Peroni expecting a gain of 60 to 90 points.

However, others noted that investors’ attention would shift to the April Consumer Price Report, due next Thursday, for confirmation of the moderate inflation indicated by Friday’s wholesale price report.

Excluding a 7.2% rise in energy prices, the report would have shown a decline in April wholesale prices.

Optimism that the Federal Reserve would ease up on interest rates in light of the favorable producer price index report prompted simultaneous rallies in the stock and bond markets, noted Ronald Reuss, an economist for Piper Capital Management in Minneapolis.

“People are getting out of their short-term money market positions and are buying longer-term bonds and stocks,” he said.

Reuss cautioned that, if interest rates drop too quickly, inflation could once again heat up, making the market uneasy again. However, he added, “I think the Fed will remain relatively tight until it’s sure the economy is slowing enough.”

Friday’s boost in the Dow industrial average accounted almost solely for the week’s overall rise of 57.74.

Consolidated volume in NYSE-listed issues, including trades on regional exchanges and in the over-the-counter market, totaled 261.42 million shares Friday.

As measured by Wilshire Associates’ index of more than 5,000 actively traded stocks, the market rose $55.32 billion, or 1.82%, in value.

The NYSE’s composite index of all its listed common stocks jumped 3.42 to 175.13.

Standard & Poor’s industrial index rose 7.40 to 360.88, and S&P;’s 500-stock composite index closed 6.89 higher at 313.84.

NASDAQ, Amex Up

The NASDAQ composite index for the over-the-counter market rose 4.20 to 434.83. The American Stock Exchange’s market value index closed at 348.30, up 2.68. American Stock Exchange volume totaled 14 million shares, up from 9.2 million Thursday, with 396 issues advancing, 210 declining and 257 unchanged.

Among actively traded issues on the NYSE, IBM rose $1.625 to $110.75, Motorola gained $2.25 to $50.625, General Electric advanced $2 to $51, and American Express jumped $2.25 to $34.

Eastman Kodak fell 50 cents to $42.75, Northwest Airlines dropped 75 cents to $102.25, and Newmont Mining slid $2.375 to 39.25.

The savings and loan sector, which stands to benefit from lower interest rates, was at the rally’s forefront. H. F. Ahmanson rose 75 cents to close at $20, Great Western Financial gained $1.125 to $19.125, and Golden West Financial added $1.75 to $45. And Federal National Mortgage Assn. leaped $3.375 to $73.25.

Utility stocks also gained on optimism about interest rates, with Pacific Gas & Electric rising 87.5 cents to $19.625.

Viacom, which was sued Thursday by Paramount Pictures over a five-year movie agreement, lost $1.25 to $51.75.