FINANCIAL MARKETS : Merger News Propels Stocks; Dow Up 22.38

The stock market surged to another post-crash high in brisk trading Thursday as the latest drug industry merger and optimism about the chances for lower interest rates brought buyers flocking into the market.

The Dow Jones index of 30 industrials closed at a new post-crash high of 2,635.43, up 22.38, producing a gain of 52.35 for the past two sessions.

Various measures of activity in the broader market reached record levels. The composite index of all common stocks listed on the New York Stock Exchange rose 2.08 to 190.22, an all-time high. The American Stock Exchange’s market value index also set a record.

Big Board volume surged to 213.68 million shares from 188.27 million in the previous session.

Advancing issues outnumbered declining ones by about 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,021 up, 496 down and 483 unchanged.

The market built on the buying momentum triggered Wednesday by signs that the Federal Reserve Board is allowing more money to feed into the banking system in an apparent bid to pump up economic activity.

The view that the economy needs the stimulation that lower interest rates would provide was bolstered by a Commerce Department report showing that the gross national product, the broadest gauge of economic activity, expanded at a feeble 1.7% annual rate in the April-June quarter.

John D. Connolly, chairman of the investment committee at Dean Witter Reynolds Inc., said the GNP reading wasn’t bad enough to fan recession fears.

“It was weak, but we’re not talking negative,” he said. “Just under 2%, that’s not particularly frightening.”

Besides upbeat feelings about interest rates, a number of forces helped carry the market aloft. Drug and health-care stocks attracted significant investor interest, sparked by a surprise announcement that Bristol-Myers and Squibb have agreed to merge in a stock-swap deal.

Squibb soared 24 3/4 to 112 1/2; Bristol-Myers dropped 2 3/8 to 49 1/2 and was the most heavily traded stock on the Big Board with more than 4.5 million shares changing hands.

Other gainers among drug and health-care stocks included: Upjohn, up 1 5/8 to 33; Abbott Laboratories, up 2 to 64 7/8; Pfizer, up 2 1/2 to 63 3/4; Warner Lambert, up 1 to 108; Syntex, up 1 3/4 to 50, and Merck, a Dow industrial average component, up 2 1/4 to 77 7/8.

Another blue chip gainer that helped boost the Dow industrial index was USX, which jumped 2 to 37 1/8 on volume of about 2.68 million shares. Elsewhere among blue chips, American Telephone & Telegraph added 1 1/4 to 40 5/8, International Business Machines gained 1/2 to 113 and Eastman Kodak rose 1 1/2 to 48 3/4.

Chrysler, which announced a $1-billion cost-cutting program because of sagging sales, fell 1 1/4 to 24 7/8.

General Motors moved ahead by 3/8 to 45 1/8 despite reporting a 3.9% drop in second-quarter income. Ford, which said its earnings were off 15.6%, rose 3/8 to 50 1/8.

Security Pacific was among the most heavily traded NYSE-listed issues and closed 1 1/8 higher at 51 1/2.

Share prices on the Tokyo stock exchange rose across the board to a new record high as investors snatched up stocks in heavy trading. The 225-share Nikkei index gained 269.45 to close at a record high of 34,785.28.

In London, stock prices were sharply higher as the market drew inspiration from a strong pound, a robust performance on Wall Street and a renewal of speculative buying interest. The Financial Times 100-share index added 19.2 points to 2,283.7.

Credit

Bond prices surged, strengthened the Commerce Department’s report on the drop in the GNP.

The Treasury’s key 30-year bond rose nearly one point or $10 per $1,000 in face amount. Its yield dropped to 8.02% from 8.10% late Wednesday.

Credit market strategists said the Commerce Department’s report confirmed other evidence that the economy has slowed, allowing the Federal Reserve to relax its grip on interest rates.

“The numbers that came out this morning on the second quarter were very positive for the market,” said Mary Clarkin, senior vice president at the fixed-income division of Nikko Securities Co. International in New York.

Bondholders generally welcome such news because a slowdown in the economy implies less demand for goods and services, easing the risk of inflation which erodes the value of their investment.

Slower growth also encourages the Fed to take steps that would lower interest rates to encourage borrowing and stimulate the economy. Lower rates make fixed-income investments such as bonds more valuable.

The federal funds rate, the interest on overnight loans between banks, traded at 9%, up from 8.50% late Wednesday.

But analysts said there was no special significance to the rise because the Wednesday figure was an aberration, coinciding with the final day of a period for banks to report on their reserves. On Tuesday, the rate was 9.063%.

Commodities

Prices of coffee futures sank to their lowest level in more than 13 years on New York’s Coffee, Sugar & Cocoa Exchange as a market shakeout stemming from the suspension of export quotas continued.

On other markets, soybean futures rallied, ending a five-day slide; crude oil futures fell for the fifth straight session; precious metals retreated, and livestock and meat futures were mixed.

Green, unroasted coffee beans settled 1.22 to 1.93 cents lower, with the contract for delivery in September at 83.44 cents a pound, the lowest price for a near-month coffee futures contract since early 1976.

Analysts said the price drop reflected aggressive new selling of coffee by Mexico, Brazil and Indonesia in a bid to increase their shares of the recently freed market and empty warehouses before new-crop coffee hits the market.

Prices of coffee futures have fallen more than 25% since July 3, when the 74-nation International Coffee Organization suspended export quotas and coffee became a free market.

Since then, the world’s largest coffee-growing nations have fought for market share by dropping their asking prices and encouraging exporters to sell as much coffee as they can.

During this week alone, Colombia announced subsidies enabling exporters to sell Colombian coffee at prices below production cost and Mexico said it planned to sell 3.4 million 132-pound bags of coffee in the third quarter.

“Under the quota system they would have sold around 1 million bags,” said Esther Eskanasy, a coffee market analyst in New York with Cargill Investor Services Inc.

“With the new crop coming in less than two months, most producers are trying to make up volume instead of price,” she said.

Most prices of grain and soybean futures advanced on the Chicago Board of Trade in a modest, technically inspired recovery from steep declines earlier this week.

The rally marked the first day-to-day advance in the soybean market in more than a week.

But experts said the rally had no basis in supply and demand reality, and that rainy weather forecasts for the Midwest and signs of a slowdown in grain exports would probably press prices back into a downward course.

Wheat settled 1.50 to 6 cents higher, with September at $3.8975 a bushel; corn was 3 to 4.75 cents higher, with September at $2.325 a bushel; oats 1.50 cents lower to 0.25 cent higher, with September at $1.43 a bushel; soybeans were 3.25 to 6.25 cents higher, with August at $6.68 a bushel.

Crude oil futures fell to a five-month low amid persistent pessimism on the New York Mercantile Exchange. The market rallied early with the September contract’s price climbing as high as $18.64 a barrel. But prices plunged in a late selloff that accelerated when September fell below $18.25.

West Texas Intermediate crude oil settled 10 to 18 cents lower, with September at $18.12 a barrel; heating oil was 0.23 to 0.53 cent lower, with August at 49.26 cents a gallon; unleaded gasoline was 0.03 to 0.64 cent higher, with August at 51.98 cents a gallon.

Gold and silver futures edged lower on New York’s Commodity Exchange, wiping the modest gains of the previous session.

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