Dow Snaps Out of Slump to Rise 33.78 in a Blue Chip Rally

The stock market snapped out of an early depression to close sharply higher, helped by program trading and a rally in blue-chip stocks.

“It’s a blue-chip rally,” said Brad Weeks, head of equity trading for Donaldson, Lufkin & Jenrette.

The Dow Jones average of 30 industrials rose 33.78 to finish at 2,640.09.

Advancing issues overpowered losers by about 12 to 7 on the New York Stock Exchange, with 951 issues up, 552 down and 433 unchanged.

Big Board volume totaled 186.71 million shares, against 134.07 million in the previous session.

The NYSE’s composite index gained 1.98 to 184.31.

At the American Stock Exchange, the market value index closed at 184.31, up 1.98.

The market opened sharply lower in what analysts said was a response to weakness in the bond market due largely to worries about the Treasury’s quarterly refunding. The Dow Jones industrials were down more than 20 points shortly after the opening bell.

Analysts said a rally in high technology stocks, along with heavy bouts of computerized program trading, helped revive the blue chip sector before midday.

Stocks retained their upward momentum in the aftermath of the Treasury’s sale of $10 billion in 10-year notes despite continued weakness in the bond market.

“It looks like the refunding is going well,” said Weeks. “Reports are the Japanese bought about 25% to 30% of the notes.”

The three-part auction, which started Tuesday with the sale of $10 billion in three-year notes, culminates on Thursday with the auction of $10 billion in 30-year Treasury bonds.

Worries about the refunding have plagued the bond market and depressed stock prices in recent sessions. In particular, investors were concerned that yields would be forced higher to compete against overseas rates and attract Japanese investors. Foreign investors, particularly the Japanese, are an important source of funds in U.S. credit markets.

Despite the rally, which some observers attributed to technical factors, some Wall Street analysts said underlying market fundamentals remained bearish and predicted a continued short-term downtrend in the market once the refunding is over.

Bond prices continued their slide in early trading today over concern that Japanese participation in this week’s Treasury bond auctions may wane.

The Treasury’s benchmark 30-year bond fell 9/32 point, or $2.81 per $1,000 face amount, and its yield, which rises when prices fall, rose to 8.61% from 8.58% late Tuesday.

Investors showed strong interest in Tuesday’s Treasury Department auction of $10-billion worth of three-year notes. There was concern, however, that Japanese investors may not be active participants in auctions of a similar amount of 10-year Treasury bonds later today and of $10 billion in 30-year Treasury bonds Thursday.

In the secondary market for Treasury bonds, prices of short-term governments fell by 1/32 to 1/16 point, intermediate maturities fell 1/16 to 7/32 point and long-term issues were down 9/32 to 3/8 point, according to the Telerate 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.