Rally at Close Sends Dow Up 27.12 to 2,678.11

Wall Street stocks staged their first rally in two weeks Wednesday after a sharp climb in bond prices propelled blue chips higher.

The Dow Jones industrial average jumped 27.12 points to close at 2,678.11, its biggest gain since it took a 41.54-point jump on Aug. 7. Nearly half of the rise occurred in the last hour of trading.

Advancing issues outnumbered declines by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,015 up, 487 down and 480 unchanged.

Traders said the 30-share Dow index soared in the last hour of trading after a surprisingly strong demand for five-year notes in an auction of new Treasury securities.

“The market really took off in the last hour,” said Charles Jensen, an MKI Securities analyst. “It was not until the auction results became known that the bond futures firmed up.”

Computerized program trading also helped propel stock prices higher in the final hour, analysts said. Until the late rally, blue chips had traded slightly higher.

Still, many Wall Streeters remain doubtful that the Federal Reserve will take any further steps any time soon to relax its credit policy.

In the view of most observers, recent evidence suggests that the Fed might be shifting its focus back to restraining inflation in the absence of any signs of an imminent recession.

In the latest bit of upbeat business news, auto makers Wednesday reported mid-August car sales that came in stronger than analysts’ estimates. General Motors shares rose 3/8 to 44 1/2; Ford Motor added 5/8 to 51 7/8, and Chrysler gained 1/4 to 24 7/8.

Other gainers among the blue chips included Dow Chemical, up 2 1/8 at 104 7/8; Alcoa, up 1 5/8 at 75 1/2; Coca-Cola, up 1 at 66 3/8; Procter & Gamble, up 2 5/8 at 126 1/2, and Eastman Kodak, up 1 at 50 3/4.

Tesoro Petroleum climbed 1 1/4 to 10 7/8. Harken Energy proposed to acquire the company for $11.75 a share.

International Minerals & Chemicals, subject of takeover rumors and speculation, gained 4 7/8 to 54.

Time Warner gained 2 1/8 to 141 3/4, and Warner Communications dropped 1 5/8 to 65 3/8. The companies said their merger-in-progress would be completed with the exchange of securities valued at $70 for each remaining Warner Communications common share.

American Family, which dismissed rumors that it had attracted a buyer from Japan, dropped 5/8 to 17 3/4 in active trading.

Volume on the floor of the Big Board came to 159.64 million shares, up from 141.93 million in the previous session.

Tokyo stock prices closed lower in thin trading following rumors that bond traders had suffered major losses. The Nikkei 225-share index lost 221.07 points or 0.62% to close at 34,893.28.

Share prices shrugged off disappointing British trade data and rallied strongly on the London Stock Exchange. The Financial Times 100-share index ended up 11.6 points at 2,382.4.

Credit

Bond prices rose sharply after what analysts called a strong market response to the government auction of five-year Treasury notes.

The Treasury’s benchmark 30-year bond gained 29/32 point, or $9.06 per $1,000 face amount. Its yield, which moves in the opposite direction from price, fell to 8.17% from 8.25% late Tuesday.

Yields on $7.8 billion in newly auctioned five-year notes fell to 8.26%, the lowest level in 2 1/2 years and down from 8.72% at the last comparable auction in May.

Analysts said the tone of the government refinancing auction came in sharp contrast to Tuesday’s sale of two-year notes, which depressed the credit market and saw the long bond fall more than $8 per $1,000 face amount.

But analysts said the upturn may be temporary, and traders are waiting for stronger indications on the economy and Federal Reserve Board action on interest rates.

“I think we’re just chomping around here in the neighborhood of current yields until we get a clearer picture of which direction the economy is going and which direction the Fed is going to take interest rates,” said David H. Resler, chief economist with Nomura Securities International Inc.

Bond prices were lower Tuesday after a revised June report on durable goods provided further evidence that the economy may be stronger than investors thought. That report was considered a cause of the disappointing results in the two-year note auction.

Bondholders fear that a growing economy will revive inflation, which erodes the value of fixed-income securities such as notes and bonds. A stronger economy also suggests that the Federal Reserve will not lower interest rates.

In the secondary market for Treasury bonds, prices of short-term governments rose about 5/16 point, intermediate maturities were up between 3/8 point to 5/8 point, and long-term issues gained between 23/32 point and 27/32 point, according to Telerate Inc., the financial information service.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The federal funds rate, the interest on overnight loans between banks, was trading at 9.625%, up from 8.875% late Tuesday.

Currency

The dollar regained some of its sharp losses from earlier in the week in thin, volatile trading.

Currency dealers said the dollar started out lower, extending its losses from Tuesday, due to continued concerns that West Germany’s central bank would raise interest rates at a regular meeting Thursday.

The dollar strengthened as some of those concerns faded and dealers decided the market had been oversold from Tuesday. Some large buy and sell orders also had a significant impact because of the thinness of the market, dealers said.

“Today was a wild day,” said Gary Lutnick, a trader for the New York office of Banco di Sicilia. “The market was in every direction. It was way up, and the next moment it was way down.”

For instance, he noted, the dollar had traded around 1.93 West German marks before rebounding above the psychologically important 1.95-mark level.

“The dollar doesn’t have a very strong direction at this moment,” Lutnick said.

The British pound started out stronger against the dollar in London but closed down at $1.5700 from late Tuesday’s $1.5840, after the British government released larger-than-expected trade deficit figures for July. Traders said there were reports of some dollar selling by Britain’s central bank.

In New York, the pound bought $1.5715, down from $1.5891 late Tuesday.

In Tokyo, where trading ends before Europe’s business day begins, the dollar fell 0.43 Japanese yen to a closing 142.35 yen. It rose in London to 143.10 yen, and in New York to 143.20 yen from 142.14 yen.

Commodities

Copper futures prices rallied strongly on New York’s Commodity Exchange amid fears that the shutdown of Mexico’s largest copper mine would put another crimp in the already tight supplies of the metal.

On other markets, precious metal futures retreated; most oil futures advanced; grains and soybeans were mostly lower, and livestock and meat futures were mostly higher.

Copper futures settled 2.45 cents to 2.55 cents higher, with the contract for delivery in September at $1.2785 a pound, the highest settlement for a copper contract since May 5. The September contract traded as high as $1.2920 during the session.

The Mexican government declared its Cananea copper mine bankrupt over the weekend and shut it down, prompting speculation that the mine could be closed for several months.

Gold and silver futures slid lower on the Comex, partly in reaction to the dollar’s gains against other major currencies.

Gold settled $2.10 to $2.70 lower, with August at $365.80 an ounce; silver was 6 cents lower across the board, with September at $5.175 an ounce.

Most oil futures ended higher on the New York Mercantile Exchange after an early selloff tied to the American Petroleum Institute’s bearishly construed weekly inventories report.

The API report indicated that U.S. stocks of crude oil rose by 4.48 million barrels last week, while refinery runs increased 0.8%.