FINANCIAL MARKETS : STOCKS : Market Reacts to Rally in Bonds; Dow Rises 14

Stock prices closed higher Friday in a fifth-straight gain, helped by an explosive bond market rally that was fueled by a rise in the unemployment rate, pointing to a slowing economy.

The Dow Jones index of 30 stocks rose 14.19 to 2,710.36, stretching its gain for the week to 65.31 points.

Advancing issues outnumbered declines by better than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,020 up, 465 down and 480 unchanged.

Big Board volume slid to 140.55 million shares from 145.57 million Thursday.

The market’s gain left the Dow index up 2.5% for the week, but many investors sat out the rally, unconvinced that the market will continue to move up.

As the day began, the Labor Department reported that the unemployment rate rose in April to 5.4%.

The figures also showed an increase of 64,000 in nonfarm payroll employment, far less than economists had expected.

Analysts said the news abruptly dampened recent speculation that the Federal Reserve might tighten credit in its campaign against inflation. Interest rates fell sharply in the credit markets.

“The talk of Fed tightening has gone by the wayside. There is undeniable weakness in these numbers,” said Joseph Carson, senior economist at Chemical Bank.

The benchmark 30-year bond climbed 1 5/8 points, or $16.25 for every $1,000 face amount, in one of the year’s biggest rallies.

But stock traders did not take the news with unequivocal enthusiasm. Brokers said it raised some fresh doubts about the outlook for economic growth and corporate profits.

Among the blue chips, International Business Machines climbed 2 1/2 to 110 1/2; General Motors rose 5/8 to 45 3/4; American Telephone & Telegraph added 3/8 to 40 3/8, and American Express gained 3/8 to 26 7/8.

In foreign trading, share prices on the London Stock Exchange closed mostly higher, buoyed by better-than-expected results for Prime Minister Margaret Thatcher’s Conservative Party in local elections. The Financial Times 100-share index rose 27.3 to 2,162.2.

The Tokyo stock market was closed for a holiday.

CURRENCY

Jobless News Sparks Decline in Dollar

The dollar fell against all major currencies except the Japanese yen after the government said the U.S. unemployment rate for April rose to its highest level in more than a year.

“That seemed to be what set it off,” Mike Ballow, a currency market analyst with Dean Witter Reynolds Inc., said of the dollar’s decline.

Signs of economic weakness, such as higher unemployment, may induce the Federal Reserve to ease interest rates. Lower rates reduce the attractiveness of returns on dollar-denominated investments, compared to those for other currencies.

“Right now, people (traders) only are concentrating on interest rates,” said Walter Simon, a vice president at Bank Julius Baer & Co. in New York.

Markets in Japan were closed for the Citizens’ Day holiday. In London, the dollar traded at 158.25 yen, up from 158.10 yen late Thursday. In New York, the dollar bought 158.30 yen, up from 158.05 yen a day earlier.

In London, the British pound moved higher, rising to $1.6595 from $1.6425 late Thursday. In New York, the pound cost $1.6635, more expensive than Thursday’s $1.6410.

COMMODITIES

Sugar Prices Fall Amid Heavy Selling

Sugar futures prices collapsed, plunging more than a penny a pound on New York’s Coffee, Sugar & Cocoa Exchange amid heavy selling by frustrated speculators on signs of slack global demand.

On other commodity markets, cocoa futures also fell sharply; copper futures retreated; precious metals were mostly lower; oil futures advanced; grains and soybeans were mixed, and livestock and meat futures were mixed.

World sugar futures settled 0.50 cent to 1.16 cents lower, with the contract for delivery in July at 14.44 cents a pound, the lowest close for a near-month sugar contract since March 1.

“Everybody was bailing out of the market today,” Merrill Lynch & Co. analyst Judith Ganes said.

She said the market had been poised for a fall after repeated failures in the past week to sustain prices above 16 cents a pound.

Speculators who had been holding out for higher prices finally gave up and began liquidating their positions, analysts said, triggering a sell-off of near-record proportions, with an estimated 76,000 contracts changing hands.

The decline was spurred on by a bearish supply-demand report by the London trading house E.D.& F. Man Ltd. The firm sharply reduced its 1989-90 sugar deficit estimate, predicting that consumption would outstrip production by 258,000 metric tons instead of 1.46 million metric tons as previously forecast.

Ganes said the Man report probably contributed to the bearish sentiment but that the revised deficit forecast was in line with other trade house predictions.

She said the sharp rise in sugar prices from less than 13 cents a pound last December has stifled demand, which is the reason for the lowered consumption expectations.

But Monday’s sharp decline could stimulate new demand, Ganes said.