Dow Absorbs Report, Rallies to Gain of 12.16

From Associated Press

Prices advanced on Wall Street today as the stock market shrugged off an economic report from the National Assn. of Purchasing Management that raised the specter of higher interest rates.

The Dow Jones industrial average rose 12.16 to 2668.92.

Advancing issues outnumbered decliners by about 6 to 5 on the New York Stock Exchange, with 811 up, 676 down and 464 unchanged.

Big Board volume totaled 149.02 million shares, against 122.75 million in the previous session.


The NYSE’s composite index rose 0.73 to 182.22.

At the American Stock Exchange, the market value index rose 0.22 to 343.32.

News that the purchasing managers’ index rose to 50.2% in April from 48.8% in March reawakened concerns in financial markets that a stronger economy would allow inflation to accelerate, causing the Federal Reserve to push interest rates higher.

Bond prices, which had been up in early trading, surrendered their gains in response to the report, and the stock market initially followed suit.

During the afternoon, however, blue chip issues regained ground; secondary stocks then caught on. Analysts said Wall Street was repeating what is becoming a classic performance--losing ground after a negative report and then recovering as traders have second thoughts about how bad the news really is.

The Treasury’s benchmark 30-year bond was down 7/16 point, or $4.38 per $1,000 face amount, around midday. Its yield, which rises when prices fall, climbed to 9.04% from 8.99% late Monday.

The drop came as the National Assn. of Purchasing Management said its index rose after 11 straight months of declines, a healthy sign for the manufacturing sector.

A healthy manufacturing sector is considered bad for the bond market because investors tend to steer clear of long-term fixed-income investments like bonds when times are good.

“All the news is showing increases in the manufacturing sector along with price pressures,” said Elizabeth Reiners, a money market economist with Dean Witter Reynolds Inc. Inflation erodes the value of bonds.

Reiners also said a government report today that construction spending fell in March for the first time this year was not interpreted as a plus because good weather in January and February produced unseasonably large gains.

In the secondary market for Treasury bonds, prices of short-term governments was down about 5/32 point, intermediate maturities were off 7/32 point and long-term issues were 1/4 point to 7/16 point lower, according to the Telerate 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 Shearson Lehman Hutton daily Treasury bond index, which measures price movements on outstanding Treasury issues with maturities of a year or longer, fell 2.52 to 1,127.79.