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Dow Zooms 63.07--Near All-Time High : Wall Street: Stock surge laid to falling interest rates and good news on inflation.

From Times Wire Services

The stock market climbed to near-record heights in heavy trading today, spurred on by favorable inflation news and falling interest rates.

The Dow index rose 63.07 points or 2.3% to close at 2,801.58. Advancing issues held a one-sided edge on declines at the New York Stock Exchange with gains outpacing losses by a strong 4-1 margin.

Big Board volume totaled 234.04 million shares, up from 158.46 million in the previous session.

The NYSE’s composite index jumped 63.06 to 2,801.57.

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The government reported this morning that the producer price index of finished goods dropped 0.3% in April, in contrast to Wall Street’s expectations of a 0.1%-0.3% increase.

Separately, the Commerce Department said retail sales fell 0.6% last month.

Analysts said the figures provided the markets with a double dose of evidence that the pace of the economy remained slow and inflationary pressures were subdued.

That served to allay whatever fears persisted on Wall Street that the Federal Reserve might move soon to tighten credit. Interest rates fell in the bond and short-term money markets.

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Bond prices rose sharply today following two government reports that indicated the economy is not overheating.

The increase follows the completion of the government’s three-day quarterly refunding, in which a record $30.5 billion in new bonds were auctioned to finance government operations.

The yield on the bellwether 30-year Treasury bond, which carried an average yield of 8.84% at Thursday’s auction, slipped to 8.69% at midday in trading on a when-issued basis.

In the secondary market for already issued bonds, the 30-year bond jumped 1 1/32 points, or about $10.32 per $1,000 in face value, after rising 9/32 point on Thursday. The yield fell to 8.72%, from 8.83% late Thursday.

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The Labor Department’s report that wholesale prices edged down 0.3% in April took the credit markets by surprise. Traders had anticipated an increase of around 0.2%. Instead, the figure put wholesale inflation for the first four months of the year at an annual rate of 4.2%, down from 4.8% for all of 1989.

The decline, the sharpest since August, was attributed to a steep drop in vegetable costs.

The report, coupled with Commerce Department data showing retail sales fell a steep 0.6% in April, sent a wave of encouragement through the credit markets that the Federal Reserve will not be inclined to raise interest rates.

High interest rates, which put a damper on an overheating economy, erode the value of fixed-income securities.

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“The news that’s coming out . . . is painting a picture of a weakening economy and declining inflation, and that’s good news for bonds,” said Jonathan V. Sebastian, an executive vice president at Clayton Brown & Associates in Chicago.

Even excluding the volatile energy and food components, wholesale prices rose a modest 0.2%.

Economic data released earlier this month “overstated both growth and inflation,” said David Hale, chief economist at Kemper Financial Services in Chicago. “Now we’re getting the other side of the crazy first-quarter numbers . . . and this is proof that the bond market overreacted” by pushing prices lower recently.

Analysts were unsure how long such a strong rally could be maintained. “We’ve almost come too far, too fast,” Sebastian said. A further test of the market’s strength will come next week when the newest Consumer Price Index report is released.

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In the secondary market for Treasury bonds, prices of short-term governments rose by 1/4 point to 1 1/32 points, intermediate maturities gained 11/32 point to 13/16 point and long-term issues rose as much as 13/32 point, according to Telerate Inc., the 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.

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 5.84 to 1,146.55.

Yields on three-month Treasury bills fell to 7.87% as the discount lost 9 basis points to 7.62%. Yields on six-month bills fell to 8.05% as the discount fell 7 basis points to 7.64%. Yields on one-year bills fell to 8.21% as the discount lost 9 basis points to 7.64%.

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