FINANCIAL MARKETS : Economic Data Spurs Stocks; Dow Up 25.42

The stock market rallied to its fourth straight advance Friday as investors cheered falling interest rates.

The Federal Reserve engineered a small drop in money market interest rates, while a trend-setting Midwestern bank lowered its prime rate by half a point to 10.5%.

At the same time, the June employment figures showed the economy was not slowing to a halt, allaying some of the market’s recent fears of recession.

The Dow Jones index of 30 industrials climbed 25.42 points to 2,487.86, stretching its advance for a holiday-shortened week to 47.80 points.

Issues rising in price outnumbered losers by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,064 up, 472 down and 458 unchanged.

Volume on the floor of the Big Board came to 166.43 million shares, up from 140.45 million in the previous session.

The market opened on a hesitant note but then picked up steam at mid-session as traders concluded that the Labor Department’s employment report for June had apparently encouraged the Federal Reserve to relax its credit policy.

The weaker-than-expected jobs report showed some sluggishness in June, but it did not suggest that the bottom was falling out of the economy, said Jon Groveman, head equity trader at Ladenburg Thalmann.

“The news today on the employment front was a wonderful report for those who believe in the theory of a ‘soft landing’ for the U.S. economy,” said Abby Joseph Cohen, senior investment strategist at Drexel Burnham Lambert.

The report showed an increase of 180,000 in non-farm payroll employment, below most advance estimates.

The figures for May were revised to show a gain of 207,000, more than double the 101,000 originally reported a month ago. Still, brokers said, Wall Streeters came increasingly to believe that the Fed interpreted the data as reason enough to ease up on its credit restraints.

Interest rates fell in the credit markets. Prices of long-term Treasury bonds rose $6.50 for each $1,000 in face value.

That helped fuel speculation that major banks might soon announce new reductions in their prime lending rates.

Gainers among the blue chips included American Telephone & Telegraph, up 1/2 at 35 7/8; Coca-Cola, up 1 1/2 at 58 3/8; Philip Morris, up 5/8 at 141 1/8; General Electric, up 1 at 53 5/8, and International Business Machines, up 1/2 at 112 1/8.

An exception was General Motors, down 3/4 at 40 1/8 on word of new cutbacks in the company’s production plans for the third quarter.

Honeywell climbed 4 5/8 to 77 3/4 on takeover speculation fueled by a column in Business Week magazine.

Tokyo stock prices closed broadly higher in moderate trading after investment trust funds and brokers bought shares in companies whose performance had been lagging. The 225-share Nikkei index gained 280.49 points to close at 33,703.97.

Share prices also rose sharply on the London Stock Exchange, boosted by evidence of a slowing U.S. economy as well as a stronger British pound. The Financial Times 100-share index ended the day at 2,189.1, up 27.9 points.

Credit

Bond prices rose, pushed up by the June employment data that provided more evidence of a slowing economy.

The Treasury’s closely watched 30-year bond rose about 21/32 point, or $6.50 for every $1,000 in face value. Its yield, which moves in the opposite direction from price, declined to 8.03% from 8.09% late Thursday.

Jay Goldinger, a principal at the investment firm Capital Insight in Beverly Hills, said that despite the gains, market activity was volatile in thin dealings as traders anticipated the Fed’s next move.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.875%, down from 9.313% late Thursday.

Currency

The dollar finished lower against all major currencies except the Japanese yen after a steady selloff sparked by fears that interest rates would decline.

Gold prices also lost ground. On the New York Commodity Exchange, gold bullion for current delivery slipped to $383.60 an ounce from $386.40 on Thursday. Republic National Bank of New York quoted a late bid for gold of $382 an ounce as of 4 p.m. EDT, down from Thursday’s late bid of $384.25.

Domestic currency trading began with a jolt as the Labor Department issued its report showing the nation’s unemployment rate rose in June.

Traders initially were confused by the specifics of the report, which showed lower-than-expected non-farm payroll growth coupled with a sharply higher revision for May. Non-farm businesses added just 180,000 jobs last month, but May’s payroll expansion was revised upward to 207,000 jobs.

“The first reaction was the dollar went up,” said Kevin Lawrie, vice president and manager at Bank of Boston’s New York office.

“But that only lasted five minutes before the dollar came barreling off,” he said. The report ultimately depressed the dollar by serving as yet another example of the economy’s slowdown.

Traders said the dollar remained under pressure from the fundamental threat it has faced throughout the week: the prospect of lower interest rates. Dollar-denominated securities such as bonds are more expensive when interest rates edge lower, which depresses the need for dollars to purchase them.

Rumors circulated through the market that the Federal Reserve may be preparing to reduce its discount rate before the weekend.

“We got a lot of (dollar) selling this afternoon,” said Stephen Flanagan, a vice president at Manufacturers Hanover Trust Co.

Flanagan did not attribute the selloff solely to the unemployment report, however. He stressed instead that the report “set the stage for upcoming statistics due out next week” by suggesting that further weakness in the economy is likely.

The government is scheduled to report on industrial production, factory use and retail sales next week. Each bearish report gives the Federal Reserve a greater incentive to trim interest rates.

Commodities

Silver futures prices fell sharply on New York’s Commodity Exchange, partly reflecting the movement of investment dollars out of precious metals and into the stock market.

Gold futures also settled lower while copper made strong gains.

On other markets, coffee futures sank; oil futures rose; grains and soybeans were lower, and livestock and meat mostly fell.

Silver settled 16.8 cents to 19.1 cents lower, with the contract for delivery in July at at $5.209 an ounce; gold was $2.80 to $3.90 lower, with August at $385.70 an ounce.

Analysts cited a variety of reasons for silver’s decline, including the dollar’s recent volatility and disappointment over the metal’s failure to rally as strongly as gold in the past two weeks.

Tim Evans, a metals trader for Deak International Inc. in New York, pointed to the stock market’s strong advance Friday as a key to silver’s decline.

“I think the big rally in stocks today indicated there was a return to be made over there, so you saw money flowing out of the precious metals and into stocks,” Evans said.

Gold’s losses were less severe. Evans said silver has been a more volatile market than gold during the last two years and that ample supplies of silver make its price more prone to retreats than rallies.

Copper futures rose on the Commodity Exchange following an exchange report that its tally of warehouse stocks of copper had fallen Thursday by 843 tons to 21,532 tons.

A threatened strike by workers at the Highland Valley copper mine in Canada’s British Columbia also supported the market.

Copper settled 3.1 cents to 3.7 cents higher, with July at $1.033 a pound.