Trading Frenzy Pushes Dow Up 49.57 to Record

A late surge of computer-directed program trading lit a fire under stock prices Tuesday and helped lift the Dow Jones industrial index 49.57 points to a record 2,870.49.

Some attributed the late trading frenzy to the impending visit of Soviet President Gorbachev or a bullish news story on IBM Corp., but others said it only showed how fast prices can move when trading is lethargic. In the post-holiday session, total trading volume on the New York Stock Exchange was a slight 137 million shares.

“This shows the vacuum effect works both ways,” said Larry Wachtel, market analyst with Prudential-Bache Securities. “On Friday, prices slid when trading was weak, and today they went the other way.”

The surge pushed another closely watched stock price gauge, the Standard & Poor’s 500-stock index, to a record high as well. The S&P; 500 closed at 360.65, after a 6.07-point advance.

The Dow tumbled 34.63 points Friday on volume of 120 million shares, in its steepest fall since Feb. 20. But with Tuesday’s advance, the Dow is up an impressive 213.73 points for the month of May.

Advancing stocks led decliners by 1,107 to 426 on the Big Board. Four hundred fifty stocks ended unchanged.

Wachtel said summit meetings have generally been bullish for stocks, and that Gorbachev’s in particular seem to have been associated with rising prices. The Soviet leader arrives in Washington today for a four-day summit.

Among individual stocks, IBM led the way, exploding $3.50, or 3%, to $119.75. The move was apparently due in part to a favorable cover story in Barron’s magazine, which said the big computer maker has solved some of the key problems it now faces.

Other technology stocks also rallied, reversing a technology stock slump that was set off last Friday when Adobe Systems made a disappointing earnings forecast. IBM is the most widely held stock among institutional investors.

Andrew Riley, market analyst with Yamaichi International in New York, said he believed Tuesday’s trading was no more than “a knee-jerk reaction to last Friday. This is just the (futures market) minions of Chicago doing their dance.”

But he said he sees two reasons for positive sentiment about the market. The first is the technical reason that the proportion of advancing stocks in the market has been declining for 10 months and the trend should soon reverse, he said.

Second, in terms of market fundamentals, Riley said he believed that the continued slow growth of the economy would soon bring an easing of monetary policy that would help pour cash into securities. “The grinding market we’ve had is reaching its end,” Riley predicted.

Analysts said they expect to see government economic statistics this week that may also help propel the market’s advance. Figures on leading economic indicators are due today, said Wachtel; on Friday, the government is to release figures on last month’s employment.

The unemployment figures “will be sluggish, underscoring that the peak on interest rates is already behind us,” predicted Wachtel.

Investors bought up the entire technology group, including Adobe, up $2.625 to $37.875 after falling $15.25 Friday; Digital Equipment, up $2.25 to $94.75; Microsoft, up $1 to $75.25, and Computer Sciences, up $2.125 to $49.25.

Strength in the 30 Dow stocks was due not only to IBM, but also to Allied Signal, which rose $1.875 to $36.50; to Coca Cola, which was up $1.625 to $45.50, and to DuPont, which rose $1.375 to $40.50. Among the Dow stocks, only Merck declined, falling 25 cents to $83.25.

Time Warner gained $3.375 to $109, following a comment by money manager Michael Price that the stock is undervalued.

MGM-UA Communications slipped 37.5 cents, or 2%, to $17.625 after a report by USA Today columnist Dan Dorfman that Pathe Communications’ proposed takeover of the film company is in trouble.

L.A. Gear fell $1.375 to $47.625, after Kidder, Peabody & Co. changed its recommendation to “hold” from “current buy.” As it retreated, rival Reebok gained 37.5 cents to $19.125, while Nike added $1.75 to $81.75.

In foreign markets, share prices were sharply higher Tuesday on London’s Stock Exchange in light trading. Most of the buying in morning trading was confined to stock-index futures. The market had a late afternoon surge, stimulated by higher prices on Wall Street. The Financial Times-Stock Exchange 100-share index finished up 30 points, or 1.3%, at 2,295.6, its session high. Volume was 330 million shares, compared to 386 million shares Friday.

But in Tokyo, a drop in the yen against the dollar sent stocks tumbling to a sharply lower close Tuesday, breaking a string of five straight advances. The key 225-share Nikkei index was down 373.94 points, or 1.13%, after advancing 397.73 points Monday.

STILL MORE TO COME?: Columnist Tom Petruno says the bull market may just be beginning. D3