Dow Gains 26.23 on Hints of Fed Cut in Interest Rates

The stock market ran up a broad gain Wednesday, extending Tuesday’s rally on signs of a new move toward a more stimulative Federal Reserve credit policy.

The Dow Jones index of 30 industrials, up 14.96 on Tuesday, climbed 26.23 points to 2,623.36.

Advancing issues outnumbered declines by more than 5 to 2 in nationwide trading of New York Stock Exchange-listed stocks, with 1,091 up, 418 down and 463 unchanged.

Stocks turned upward Tuesday on evidence that the Federal Reserve was taking steps in the money markets to encourage interest rates to decline. News accounts this morning quoted unidentified government officials as saying that inference was correct.

Analysts said that encouraged stock traders who had been growing increasingly apprehensive about the possibility of a recession.

Wall Streeters still expect corporate profits, which came in below expectations for the third quarter, to be disappointing for the next few months.

But the Fed could presumably cushion the impact of an economic slowdown in the future by relaxing its credit policy now.

A relatively small St. Louis bank lowered its prime lending rate to 10% from 10.5%, helping to stir expectations that bigger money-center banks might soon do the same.

Bank stocks were notably strong. J. P. Morgan gained 1 7/8 to 43 1/2; BankAmerica rose 1 1/4 to 28 5/8; Manufacturers Hanover edged up 1 1/4 to 37, and Chemical Banking rose 1 to 32 1/8.

Gainers among the blue chip industrials included Philip Morris, up 3/4 at 41 5/8; General Electric, up 1 at 54 1/2; Procter & Gamble, up 2 5/8 at 129 1/8; Coca-Cola, up 2 1/4 at 74 1/2, and American Telephone & Telegraph, up 3/4 at 44 1/4.

But International Business Machines dropped 5/8 to 96 3/4 and Digital Equipment was down 1 1/2 at 87.

Woolworth dropped 1 1/8 to 58 1/4 amid some disappointment about the size of the quarterly earnings gain posted by the company.

Wyse Technology led the active list, down 1/8 at 9 3/8. The stock traded as high as 12 1/2 early in the session amid takeover rumors.

Then it fell back when the company said it was discussing a possible acquisition at $10 a share with a party it didn’t identify.

Big Board volume totaled 170.15 million shares, against Tuesday’s 163 million.

Prices on the Tokyo Stock Exchange rebounded in moderate trading, ending a three-session losing streak. The key Nikkei average of 225 shares jumped 325.13 points to close at 35,595.59.

In London, stocks closed sharply higher Wednesday largely on technical factors and positive sentiment stemming from Wall Street’s continued recovery from its steep loss at the start of the week. The Financial Times 100-share index rose 25.6 points to close at 2,203.6.

Credit

Treasury bill prices rose as the bond market also reacted favorably to the signs that the Fed had eased monetary policy. Prices of longer-term securities were mixed.

The Treasury’s closely watched 30-year bond fell 1/16 point, or under $1 for each $1,000 in face amount. Its yield, which rises when prices fall, increased to 7.87% from 7.86% late Tuesday.

Analysts said there was little activity in longer-term issues because of hesitation in advance of Treasury auctions of 10-year and 30-year securities scheduled for next week.

“Bills did well,” said F. Ward McCarthy Jr., managing director of Stone & McCarthy Research Associates. “Primarily I think it’s because it’s generally acknowledged that the Fed has eased monetary policy, so some of the short-term rates responded favorably.”

Easier monetary policy and lower interest rates increase the value of securities that are already issued and pay higher rates.

Traders believe that evidence of credit policy easing came Tuesday, when the Fed unexpectedly injected $2 billion of reserves into the market. The sign was registered in a drop in the key federal funds rate, the interest on overnight loans between banks.

The federal funds rate was quoted at 8.375%, down from 8.50% late Tuesday.

A quarter-point drop in the federal funds rate this week is the fifth small decline that has occurred since late May, when the central bank began to reverse a yearlong effort to drive interest rates higher as a way to fight inflationary pressures.

Currency

The dollar rose modestly against most major currencies.

Gold prices also advanced. Republic National Bank of New York quoted a bid for gold at 4 p.m. EST of $387.50 an ounce, up from $384.75 late Tuesday.

Currency traders said the dollar showed fundamental strength despite the market’s perception that the Fed is relaxing its credit policy, which likely would encourage lower interest rates. Falling interest rates usually depress the dollar’s value.

“The dollar is basically absorbing the lower interest-rate scenario rather well,” said Robert Hatcher, a vice president of corporate trading at the New York office of Barclays Bank PLC. “It’s hanging in there.”

He noted that traders are looking toward today’s government report on wholesale price inflation in October for further signs of an economic slowdown, which could spur the Fed to ease credit further.

In Tokyo, where trading ends before Europe’s business day begins, the dollar fell to a closing 142.97 Japanese yen from 143.63 yen at Tuesday’s close. Later, in London, it declined further to 142.73 yen. But in trading in New York, the dollar recovered and finished at 143.18 yen, up from 142.95 yen late Tuesday.

The British pound rose in London to $1.5860 from $1.5810 late Tuesday. Later, in New York, the pound fetched $1.5885, up from $1.5865 the day before.

Commodities

Energy futures prices slid on the New York Mercantile Exchange as traders shrugged off news that petroleum stocks in the United States declined.

On other markets, grain and soybeans and precious metals were mixed, copper advanced and livestock and pork futures were mostly higher.

West Texas Intermediate crude oil settled 3 to 15 cents lower, with the contract for delivery in December at $19.87 a barrel; heating oil was 0.16 cent to 1.13 cents lower, with December at 58.70 cents a gallon; unleaded gasoline was 0.49 to 0.54 cent lower, with December at 51.87 cents a gallon.

The selling was spurred by bearish inventory data from the American Petroleum Institute, which showed a 3.98-million-barrel draw on crude stocks to 341 million barrels.

“Most of the stock drawdown occurred on the West Coast, while stocks actually increased in the Midwest and Gulf regions,” said Jerry Samuels, an analyst with Shearson Lehman Hutton Inc. in New York.

Copper futures prices were higher on New York’s Commodity Exchange as uncertainty continued about labor activity at Chile’s Chuquicamata mine, the world’s largest open-pit mine.

Copper was 1.5 to 3.9 cents higher, with November at $1.1545 a pound.