Program Trading Triggers Late Rally; Dow Soars 40.85

Stock prices rose sharply Tuesday on computer-driven program buying that sent the Dow Jones industrials to within two points of their record highs.

The Dow, up 30.19 Monday, gained 40.85 to 2,933.42, much of that in the final hour of trading. It was the second-highest closing in history, eclipsed only by the record 2,935.19 reached June 4.

In the broader market, advancing issues outnumbered declines by about 2-to-1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,003 up, 545 down and 473 unchanged. Big Board volume totaled 157.10 million shares, up from a two-month low of 119.55 million shares Monday.

Analysts attributed the rally to a bout of program trading, the computerized strategy of buying and selling large quantities of stocks and stock index futures to exploit price disparities in the two markets. They said buy programs kicked in automatically late in the day when futures prices substantially exceeded stock prices, making stocks an attractive buy.

“It (the rise) caught everyone by surprise,” one trader said. “There was no follow-through on the downside, so (stocks) turned right back up.” Analysts also said large institutions were late buyers, as some began moving money from bonds into stocks.

“I think a lot of people expected it to sell off, and when it firmed, that got people afraid they’d miss the rally and they hopped aboard,” said Oppenheimer & Co. market strategist Michael Metz.

Some analysts said the surge provided evidence that last week’s drop in prices was just a temporary setback.

“We know there are a lot of skeptics still on the fence, and the performance of the market has been dragging more of the skeptics into the market,” said Hugh Johnson, chief investment officer for First Albany Corp.

Volume again was light, although analysts expect trading to pick up later in the week when the government releases reports on producer and consumer prices. “It looks like a market waiting for news or waiting for something to happen,” said Robert Farrell, strategist at Merrill Lynch & Co.

The Dow’s advance was led by Procter & Gamble, up 3 1/4 to 84 1/4; Merck, up 2 5/8 to 83 3/8, and 3M Co., up 2 to 85 1/8.

Oil service stocks saw significant buying. Halliburton rose 1 to 46 7/8, and Baker Hughes rose 1 to 28 7/8.

Investors also flocked back to high-tech stocks. Sun Microsystems jumped 1 3/8 to 33, Apple gained 1 1/2 to 40 1/2 and International Rectifier rose 1 1/4 to 12.

Santa Ana-based Tokos Medical rocketed 4 1/4 to 15 on news that it is buying a company in the same line of business as Tokos: monitoring devices for pregnant women who are at high risk of premature labor. Tokos will exchange 2.7 million of its shares for private Physiologic Diagnostic Service of Atlanta.

New Line Cinema jumped 3/4 to 13 1/4 after declaring a 25% stock dividend.

Other active stocks posting gains included General Electric, up 1 3/8 to 70 1/4; Exxon, up 1 to 48 7/8; Coca Cola, up 7/8 to 45 3/8; IBM, up 3/8 to 120 1/4; Westinghouse, up 3/8 to 37 7/8, and Philip Morris, up 7/8 to 45.

In Tokyo, the yen’s weakness discouraged stock market investors. The blue-chip Nikkei 225-share index lost 217.87 to close at 32,322.31. In London, prices closed higher but off their peaks for the day. The Financial Times 100-share index ended up 21.9 at 2,370.7.

In Frankfurt, the 30-share DAX index dropped 9.30 to 1,800.36, as investors continued to fret about pending German unification.

CREDIT Bond Prices Dip in Sluggish Trading Bond prices were off slightly in another slow day on the bond market as investors awaited economic reports due out this week.

“I think the market’s activity could be concentrated between Thursday morning and Friday morning,” said Maria Ramirez, of Maria Ramirez Capital Consultant’s Inc. in New York. She said most activity will be based on the producer price index for May due Thursday and the consumer price index for the same month to be released Friday.

The Treasury’s benchmark 30-year bond fell 1/8 point, or $1.25 per $1,000 face amount, while its yield rose to 8.45% from 8.44% late Monday.

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

CURRENCY British Pound Leaps to Four-Month High The dollar ended mixed against other key currencies, but the spotlight in foreign exchange was on a soaring British pound, which reached a four-month high against the U.S. currency in Europe.

Currency dealers said dollar trading was slow and in a narrow range before economic data scheduled for release later this week.

Most of the market’s interest Tuesday was focused on a rush to buy sterling. The pound rose against other currencies and reached a four-month high against the dollar in Europe on reports that Britain plans full membership in the European Monetary System within a year.

The Financial Times reported Tuesday that Treasury officials expect Britain’s underlying inflation rate to be low enough toward year-end to include the pound in the monetary system.

Sterling traded at $1.7020 in London, up from $1.6858 late Monday, and at $1.7035 in New York, up from $1.6860.

In Tokyo, where the global trading day begins, the dollar rose 0.30 yen to a closing 154.40 yen. It was quoted at 154.55 yen in New York, down from 154.77 Monday.

COMMODITIES Gasoline Futures Rebound Sharply Gasoline for July delivery soared more than 2.6 cents a gallon on the New York Mercantile Exchange, erasing steep losses registered during the three previous trading sessions.

Market analysts said the rally reflected a bevy of minor influences, including jitters about the crippled oil supertanker Mega Borg off the Texas coast.

On other commodity markets, grain and soybean futures were mixed, livestock futures fell and pork bellies advanced.

Wholesale gasoline futures settled 1.3 to 2.62 cents higher, with the contract for delivery in July up 2.62 cents at 58.5 cents a gallon.

West Texas Intermediate crude oil futures finished 3 to 69 cents higher, with July at $17.51 a barrel; wholesale heating oil ended 0.60 cent to 1.66 cents higher, with July at 48.29 cents a gallon.

Analysts viewed the rally partly as a technical correction after a three-day decline in which the July gasoline contract fell a total of 2.48 cents.

Buying by wholesalers and distributors in the cash gasoline market also contributed to the run-up, as did concerns about the burning supertanker in the Gulf of Mexico.

Tables begin on D8