STOCKS : Declining Oil Prices Boost Dow by 11.39

A sharp fall in oil prices and solid gains in the Treasury bond market pushed Wall Street stocks higher Monday, overriding investor fears about the weak state of the economy.

The Dow Jones industrial index closed up 11.39 at 2,502.23. In the broader market, advancing issues outnumbered declines by more than 9 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 1,029 up, 547 down and 425 unchanged.

Big Board volume came to 147.51 million shares, down from 168.70 million Friday.

The key catalyst to Monday’s gains--which topped a solid rally last week--was the price of oil, which tumbled on signs that inventories remain high despite the Persian Gulf crisis.

The December crude oil contract on the New York Mercantile Exchange tumbled $2.04 to $31.96 a barrel.

“Equities are up in relation to the break in crude oil,” said Jack Solomon, a technical analyst at Bear Stearns.

Stronger Treasury bonds also propelled Wall Street.

Traders said continued interest in financial services stocks also helped lift the 30-share index.

Hopes that “there will be a further infusion of funds by the Federal Reserve” bolstered that sector, said Solomon.

Expectations of lower interest rates have been sparked by the weak state of the economy, which may prompt the Fed to make money cheaper to borrow in an effort to spur growth.

But, Solomon warned, the financial services sector remains a trouble spot. “Nothing fundamental has changed. This is a technical rebound from selling overkill,” he said.

Bradley Turner, chairman of McDonald & Co.’s investment policy committee, said, “It’s also a technically based rally. . . . We (the Dow) crossed back over the 2,500 area, and that had a certain psychological impact on the market.”

After an advance of nearly 55 points last week, “we’d been looking for some correction this morning,” said Robert Walberg, an analyst at MMS International. “When we didn’t get that, it encouraged some buyers to return.”

And while a weak dollar was a deterrent--it hit a new low versus the German mark--Wall Street chose to focus on the oil and bond markets, ignoring foreign exchange traders’ concerns about the stumbling economy.

But investors still kept an eye out for trouble down the road, looking to Tuesday’s congressional elections and this week’s record auction of new Treasury bills, notes and bonds.

Larry Wachtel, a market analyst at Prudential-Bache, said the market must overcome the congressional elections, the Treasury’s $34.25-billion auction and any bad news out of the Middle East.

Among the market highlights:

* Gainers among financial stocks included Federal National Mortgage, up 7/8 to 30 1/8; BankAmerica Corp., up 1 1/2 to 21 7/8; American International Group, ahead 2 1/2 to 69 3/8; Manufacturers Hanover, up 7/8 to 18 1/2; J. P. Morgan, ahead 1 1/8 to 40 1/8, and C&S-Sovran;, up 1/8 to 16 as the most active Big Board issue.

* Among other prominent financial issues, Federal Home Loan Mortgage gained 1 1/2 to 37 3/4; Kemper Corp. advanced 5/8 to 19 1/2, and Travelers Corp. rose 1/2 to 14 3/8.

* Shares of Neiman Marcus dropped 1 7/8 to 12 3/4 after General Cinema withdrew its $14.40-a-share offer for the 16.4 million shares it does not already own.

* Square D Co.’s shares jumped 2 7/8 to 47 7/8 on rumors it may be a takeover candidate, analysts said.

* The stock of Norstan Inc. fell 2 1/8 to 6 3/8 after the company said second-quarter earnings would be lower than expected.

* GTE Corp. said its proposed merger with Contel Corp. may not go ahead until the second quarter of 1991 because of the lengthy regulatory process. GTE’s stock dropped 1 1/4 to 28 1/4, and Contel fell 1 3/8 to 33 3/4.

* Shares of Eagle-Picher Industries Inc. gained 1 7/8 to 3 3/4. The company said it expects a settlement within 30 days of litigation over its asbestos-containing insulation products.

Stock prices posted slight gains Monday on the Tokyo Stock Exchange as the Middle East situation coupled with U.S. developments robbed the market of virtually all activity.

The key Nikkei index of 225 selected shares, which fell 100.17 points Friday, rebounded 190.34 points to 24,385.33.

Share prices also finished higher on London’s Stock Exchange, boosted by a buoyant performance on Wall Street late Friday. The Financial Times 100-share index was up 19.4 points, or 1%, at 2,050.1.

German share prices closed mixed in quiet trading, as a lack of follow-up orders erased moderate gains recorded at the start of trading. The 30-share DAX finished 0.63 points higher at 1,414.95.

CREDIT: Bond Prices Rise on Inflation News Bond prices jumped on signs of waning inflation, buoying the credit markets just as they were bracing to absorb a glut of new Treasury debt from a record-size auction.

The Treasury’s bellwether 30-year bond rose 13/16 point, or $8.13 per $1,000 in face amount. Its yield, which falls when prices rise, eased to 8.62% from 8.70% late Friday.

The rise in bond prices warmed investors the day before the government was about to start pumping a record $34.25 billion of new securities into the credit markets, possibly saturating demand.

Today, the first day of the government’s quarterly refunding, the Treasury will sell $12.5 billion in three-year notes.

“We had a wild day, a very good day for the market on the eve of three important auctions,” said Scott Winningham, money market analyst at Scott & McCarthy Research Associates Inc.

Bond traders bought aggressively Monday after the release of a key index that showed a widespread decline in commodity prices to their lowest level in nearly a year. The Commodity Research Bureau’s index, a measure of 21 commodities, fell 1.9 to 227.50.

Prices of bonds and notes were also nudged up by falling oil prices.

Lower inflation rates can put pressure on the Fed to ease interest rates, which can increase the value of securities such as bonds and make them a more enticing investment.

The federal funds rate, the interest on overnight loans between banks, traded at 7.938%, up from 7.875% late Friday.

COMMODITIES: Fading Sales Hopes Hit Soybean Futures Soybean futures prices sagged to new three-month lows Monday on the Chicago Board of Trade amid disappointment over export sales and perceptions that 1990 U.S. soybean production will exceed expectations.

Grain futures finished mixed.

On other commodity markets, oil futures fell sharply; precious metals rose; coffee was down; livestock futures were mixed, and pork bellies soared.