FINANCIAL MARKETS : STOCKS : Dow Up 41 on Interest Rate and Summit Hopes
The stock market surged Friday, lifted by a surprise afternoon rally that drew strength from investor hopes for lower interest rates and a promising U.S.-Soviet summit this weekend.
The Dow Jones index of 30 industrials jumped 41.38 points to 2,747.65, the 10th-highest close ever.
The intensity of the rally, which sent the Dow index up more than 50 points before it eased back, took many market observers by surprise.
“I’m as shocked as anybody,” said Brad Weeks, head of equity trading for Donaldson, Lufkin & Jenrette.
Advancing issues outnumbered decliners by about 2 to 1 in nationwide trading of New York Stock Exchange-listed issues, with 1,004 up, 510 down and 465 unchanged.
“Usually markets do well prior to summits,” said Larry Wachtel, analyst with Prudential-Bache Securities Inc. “I don’t know what the market expects. But there’s always a gamble that something good will come out of it.”
The market also got help from economic reports that pointed to a sluggish fourth-quarter economy. The news heightened expectations that the Federal Reserve will cut short-term interest rates to stimulate growth.
The government reported that its chief economic forecasting gauge, the index of leading economic indicators, fell 0.4% in October, the sixth month of declines or no gain this year.
That report was followed by the Purchasing Management Assn.’s November report showing a decline in the group’s index to 46.6% from 47.6% in October. A reading below 50% indicates a contraction in the nation’s manufacturing sector.
A sharp rise in UAL stock helped fuel the rally in blue chips. The stock was up 12 1/2 to 174 on rumors that a new employee-led buyout plan was being prepared.
Big Board volume was 199.20 million shares, up from 153.20 million in the previous session.
In London, share prices rose strongly in active trading as a shortage of stock squeezed the market.
The 100-share Financial Times-Stock Exchange index closed 34.3 points up at 2,311.1.
The Nikkei average of 225 selected issues, which set a landmark Thursday, plunged 136.11 yen to close at 37,132.68 yen.
CREDIT Bond Prices Gain in Cautious Trading Bond prices rose moderately in cautious trading Friday after two reports indicated that the economy continues to weaken.
The Treasury’s closely watched 30-year bond rose 5/32 point, or about $1.56 for every $1,000 in face value. Its yield, which falls when the price rises, slipped to 7.87% from 7.89% late Thursday.
The biggest influence on the market was the monthly survey issued by the National Assn. of Purchasing Management, which provided evidence that business continues to slow in the manufacturing sector, analysts said.
The government’s report that its chief economic forecasting gauge, the index of leading economic indicators, fell 0.4% in October also boosted bond prices.
Both reports were seen as indications that the economy is softening. Traders believe that the Federal Reserve is more likely to relax credit if the economy is weak. Such an action would allow interest rates to decline and bond prices to rise.
Yields on three-month Treasury bills fell to 7.76% as the discount dropped 8 basis points to 7.52%. Yields on six-month bills declined to 7.72% as the discount fell 5 basis points to 7.34%. Yields on one-year bills slipped to 7.64% as the discount lost 5 basis points to 7.14%.
The federal funds rate, the interest charged on short-term loans between banks, was quoted at 8.4375%, down from 8.625% late Thursday.
CURRENCY Dollar Gains; Gold Prices Rise The dollar posted some gains Friday against other major currencies in relatively uneventful foreign exchange trading.
Gold prices also rose. Republic National Bank in New York quoted a bid for gold as of 4 p.m. EST at $413.50 an ounce, up $2.85 from Thursday’s late bid.
In Tokyo, the dollar rose to a closing 143.08 Japanese yen from 142.90 yen at Thursday’s close. Later, in London, it slipped to 143.05 yen. In New York, the dollar rose to 143.40 yen from 142.80 yen late Thursday.
The dollar gained ground against the British pound. In London, the pound fell to $1.5665 from $1.5700 late Thursday. In New York, the pound fell to $1.5625 from $1.5700 late Thursday.
COMMODITIES Cold Weather Sends Heating Oil Soaring Falling temperatures and winter winds sent heating oil prices soaring to three-year highs in futures trading Friday.
With no respite in sight for the cold weather, traders actively bought heating oil futures. This helped spur strong increases in gasoline and crude oil prices on the New York Mercantile Exchange.
According to analysts, the spot contract in heating oil last reached these levels in April, 1986.
NYMEX January heating oil rose 1.10 cent to finish at 62.91 cents a gallon after hitting a new contract and three-year high at 63.10 cents. January crude oil closed up 41 cents at $20.30 a barrel. January unleaded gas ended 0.76 cent higher at 52.11 cents a gallon.
Elsewhere in New York, Commodity Exchange gold continued on the comeback trail following three days of declines.
COMEX spot December gold rose $2 to close at $413.60 an ounce.
Meanwhile, in Chicago, corn prices collapsed on selling by speculators.
Corn futures traded at the Chicago Board of Trade advanced early in the session on confirmation of rumors that the Soviet Union had purchased 1.4 million metric tons of corn. But the news had already been factored into pricing and was substantial enough to counter selling by a prominent market player.
December corn settled 3.75 cents per bushel lower at $2.345.
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