STOCKS : Dow Climbs 12 Despite Hint of New Inflation

Prices advanced on Wall Street Tuesday as the stock market shrugged off a purchasing managers report that indicated that a new round of inflation may be in the offing.

The Dow Jones industrial average picked up 12.16 to close at 2,668.92.

In the broader market, advancing issues outnumbered decliners in nationwide trading of New York Stock Exchange-listed stocks, with 820 up, 679 down and 467 unchanged.

Big Board volume came to 149.02 million shares, up from 122.75 million in the previous session.

The market opened higher but began to lose ground after the National Assn. of Purchasing Management, which tracks the manufacturing economy by surveying its members each month, said its index rose to 50.2% in April from 48.8% in March.

A reading above 50 generally indicates the economy is expanding.

The purchasing managers report reawakened concerns in the financial markets that a stronger economy would allow inflation to accelerate, and that the Federal Reserve would in turn push interest rates higher.

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

But while the credit markets went on to close lower, Wall Street took its own path, with blue chips first moving higher in the afternoon and secondary stocks catching on later.

Tuesday’s session repeated what has become a familiar stock market response to a negative report.

Michael Metz, an analyst with Oppenheimer & Co., said traders realized that much of the bad news had already been discounted by the market. Once the initial shock wore off and prices did not drop further, buyers came back into the market, he said.

The most actively traded issue on the NYSE was Security Pacific, which closed unchanged at 36. Both Security Pacific and the second-most active issue, Chase Manhattan, were involved in dividend-related trading. Chase was off 1/2 at 24 7/8.

First-quarter earnings reports gave some stocks a boost. Chrysler rose 3/4 to 15 1/4 after issuing a somewhat better-than-expected earnings report, and Boeing was up 2 1/2 to 72 1/4 after announcing Monday that its sales jumped 60% and its profits rose 87%.

Pepsico fell 1/2 to 65 3/4 and Coca-Cola rose 1/2 to $76.75 after Burger King announced that it was switching to Coke from Pepsi in its U.S. fast-food outlets.

In foreign trading, Tokyo stocks closed moderately higher. Trading was thin after a three-day weekend and ahead of market holidays in Tokyo on Thursday and Friday. The key 225-share Nikkei index closed up 105.03 points at 29,689.83.

In London, share prices finished mostly higher, continuing a technical recovery. The Financial Times 100-share index finished up 14.5 points at 2,117.9.

CREDIT Bond Prices Drop; Interest Rates Rise Bond prices fell, pushing a key long-term interest rate over 9% once again amid new signs of strength in the economy.

The Treasury’s closely watched 30-year bond fell 3/16 point, or $1.88 for every $1,000 in face value. Its yield, which rises when the price declines, jumped to 9.03% from 8.99% late Monday.

Analysts said bond prices turned downward after the National Assn. of Purchasing Management reported that its index had risen in April. That was a healthy sign for the manufacturing sector but a source of anxiety about inflation.

“That sent me back into my foxhole,” said John Sebastian, an executive vice president at Clayton Brown & Associates in Chicago.

The growth in manufacturing was boosted by strength in new orders, particularly exports. Analysts also said the data indicated that inventories were lean and that manufacturers were hiring part-time workers in an effort to keep down costs.

A healthy manufacturing sector is considered bad for the bond market because a growing economy usually means credit demand rises, pushing interest rates higher while depressing prices of fixed-income securities.

“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 Tuesday 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.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.125%, down from 8.188% late Monday.

CURRENCY Dollar Closes Mixed in Light Trading The dollar ended mixed Tuesday in light trading as many European markets were closed for the May Day holiday.

Bob Morrissey, a trader with Bank of Boston, said the dollar traded in a narrow range, with little news affecting the market.

Many European markets were closed for May Day, and trading in the United States was thin, he said.

In Tokyo, the dollar fell to a closing 158.90 Japanese yen from 159.08 yen on Friday. Japanese markets were closed Monday for a holiday. Later Tuesday, in London, the dollar fell to 158.80 yen. In New York, the dollar bought 158.85 yen, down from 158.90 late Monday.

In London, the dollar rose against the British pound. It cost $1.6385 to buy one pound, cheaper than $1.6390 late Monday. In New York, the dollar lost ground, with the pound trading at $1.6445, more expensive than $1.6405 late Monday.

Other late dollar rates in New York, compared to late Monday quotes, included: 1.6805 West German marks, up from 1.6795; 1.4555 Swiss francs, up from 1.4530; 5.6370 French francs, up from 5.6330; 1,231.75 Italian lire, up from 1,230.50, and 1.1646 Canadian dollars, up from 1.1644.

Gold prices rose. On the Commodity Exchange in New York, gold bullion for May delivery settled at $370 an ounce, up $1.60 from late Monday. Republic National Bank of New York also quoted a late bid for gold at $370 an ounce, up $1.30.

COMMODITIES Soybean Prices Fall in Sudden Reversal Soybean futures prices fell moderately on the Chicago Board of Trade after a sudden reversal in a technically inspired rally that had driven prices to new nine-month highs.

Grain futures followed the soybean market and ended mostly lower.

On other commodity markets, energy futures rose sharply; copper futures surged; precious metals advanced, and livestock and meat futures were mixed.