Fed Spurs Hope; Dow Rallies for 14.96 Gain

From Associated Press

Stock prices rallied from a weak opening amid renewed investor optimism that the Federal Reserve might move to lower interest rates. Wall Street analysts said the Fed's addition of reserves to the banking system through customer repurchase agreements sparked an increase in the bond market that helped boost stock prices.

The Dow Jones average of 30 industrials rose 14.96 points to 2,597.13.

Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, with 811 issues up, 633 down and 506 unchanged.

Big Board volume totaled 163.00 million shares, against 135.48 million in Monday's session.

The NYSE's composite index rose 0.97 to 185.74.

At the American Stock Exchange, the market value index ended at 368.51, down 0.17.

Investors interpreted the Fed activity as an indication that the next move might involve a cut in the discount rate, the rate the central bank charges its member banks, traders said.

The yield on long-term Treasury bonds fell sharply after the Fed's move. The federal funds rate, the interest commercial banks charge each other for overnight loans, also declined.

Stock prices opened weak then waffled through the morning session.

"It appears that the Fed might be doing a little easing, and that's why the market has rallied," said Ralph Bloch, chief market analyst with the investment firm Raymond, James & Associates in St. Petersburg, Fla.

On Monday, the Dow Jones Industrial Average fell 47.34 points on what analysts said was a response to unexpectedly weak third-quarter earnings reports. The bleak outlook for fourth-quarter corporate profits and interest rates worries had also helped depress prices, analysts said.

Last week's better-than-expected unemployment report rekindled worries that the Fed would not ease credit soon. Investors hope for a decline in short-term interest rates to revive corporate profitability, analysts said.

Analysts also attributed the day's gains to bargain hunting and technical factors after Monday's steep declines.

"We were oversold after yesterday," said said L. Crandall Hays, analyst with Robert W. Baird & Co.

Bond prices were slightly higher in early trading today.

The Treasury's closely watched 30-year bond gained 3/16 point, or $1.87 for every $1,000 in face value, by around midday. Its yield, which falls when prices rise, edged down to 7.94% from 7.95% late Monday.

Bond prices got a "little kick" today from talk in the market that Japanese investors plan to be active buyers of government securities in future U.S. Treasury auctions, said Mitchell Held, chief financial economist at Smith Barney, Harris Upham & Co.

In the secondary market for Treasury securities, prices of short-term government issues rose 1/16 point to 1/8 point, intermediate maturities increased 1/8 point to 5/32 point and long-term issues were up 1/16 point to 7/32 point.

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