STOCKS : Mideast Peace Hopes Propel Dow Up 30.70

Stock prices rose sharply Wednesday, closing at their highest level in nearly three months as increased hopes for peace in the Persian Gulf sent oil prices tumbling.

The Dow Jones industrial index rose 30.70 points to close at 2,610.40, the first time the 30-share index has closed above 2,600 in nearly three months.

The Dow hit 2625.74 on Sept. 13.

Big Board volume reached 205.82 million shares, up from 185.82 million Tuesday.

In the broader market, advancing issues outnumbered declines by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,087 up, 485 down and 446 unchanged.

An earlier advance in stocks gathered momentum in mid-afternoon after Iraq formally accepted an offer made by the United States to discuss the Persian Gulf crisis.

“When that statement came out, it helped the market move to another level,” said Edward Laux, a senior vice president at Kidder, Peabody & Co. “Oil came off sharply.”

“I think the (stock) market has fully discounted war, but it has not come to grips yet with the prospects for peace,” said David Holt, director of technical research at Wedbush Morgan.

Steve Poling, executive vice president at AMEV Advisors Inc., said: “There’s a sigh of relief we’re going to be talking.”

Lower oil prices would reduce inflationary pressures--good news for stocks. But peace prospects were not the only stimulus to the market.

Among the market highlights:

* Bank stocks staged one of their biggest rallies of the year, on growing expectations that the banks will be helped by Federal Reserve moves to ease the credit crunch. Also, traders who had shorted the stocks--betting that they would slide further--rushed in to buy the stocks to close out their positions. California banks were among the market leaders. First Interstate surged 3 1/2 to 25 3/4, BankAmerica rose 1 5/8 to 26 1/8, Security Pacific jumped 2 5/8 to 25 1/2, Wells Fargo leaped 4 3/8 to 59 1/2 and City National was up 1 1/4 to 15.

Among other banks, Citicorp rose 1 3/8 to 15 3/4, Manufacturers Hanover was up 2 3/4 to 23 1/8 and First Chicago jumped 2 3/8 to 21 1/8.

Other financial stock gainers included Federal National Mortgage, up 2 5/8 to 34 1/4; American Express, up 1 3/4 to 22 3/4, and S&Ls;, including Great Western Financial, up 3/4 to 12 1/8. But Coast Savings plunged 3/4 to 2 3/8 on new pessimism about its future.

* Home builders and other real estate stocks rocketed with the banking stocks. Centex gained 2 1/4 to 27 3/4, Kaufman & Broad soared 1 1/4 to 8 7/8 and Hilton added 2 1/2 to 34 1/2.

* Some battered industrial stocks rallied. Phelps Dodge added 2 1/8 to 55, Cummins Engine rose 1 3/4 to 35 1/2 and Dow Chemical gained 1 to 46 1/2. But Ford fell 1/4 to 27 1/2 on news it expects a fourth-quarter loss.

* Hospital and health-care stocks continued to lead the market. National Medical Enterprises rose 1 to 39, FHP International rebounded 1 1/2 to 14 3/4 and NovaCare was up 1 3/8 to 18 7/8.

* Technology stocks, strong recently, rallied anew. Apple Computer jumped 1 5/8 to 40 1/8, Sun Microsystems leaped 2 to 22 3/4, Teradata rose 1 1/4 to 11 1/4 and software firm MacNeal Schwendler jumped 1 1/4 to 11 5/8.

* Entertainment stocks also were winners. Disney rose 3 3/4 to 106, Carolco Pictures jumped 1 3/4 to 8 and Live Entertainment gained 1 to 11.

German stocks ended 1.7% higher the optimism about an early solution to the gulf crisis swept through the market, prompting cautious buying by both foreign and domestic investors. The 30-share DAX index rose 24.62 points to 1,470.96.

Tokyo stocks also ended higher on hopes of a peaceful resolution to the crisis. The key Nikkei 225-share index closed up 331.11 points at 22,193.72 in moderately active trading.

In London, stocks rose in slow trading. At the close, the broad-based Financial Times-Stock Exchange 100-share index was up 6.3 points at 2,152.6.

CREDIT Bond Prices Gain in Heavy Trading Bond prices edged up in an actively traded market that responded to conflicting signals about political and economic events.

The Treasury’s bellwether 30-year bond was up 1/16 point, or about 63 cents per $1,000 in face amount. Its yield, which falls when prices rise, was down to 8.31% from 8.32% late Tuesday.

While trading was fairly heavy, the long-term bond price did not budge more than 5/8 point throughout the day.

“We were affected by the ebb and flow” of sentiment in the Middle East, said Peter Greenbaum, an economist at Smith Barney, Harris Upham & Co. “It looked to be a wash.”

Traders were also buoyed by a Federal Reserve survey showing the economy in all regions of the country were either declining or growing sluggishly at November’s end.

The so-called Beige Book assessment of the economy found both retail sales and construction activity weak in virtually all of the central bank’s 12 districts.

But speculation that the sliding economy might lead the Fed to lower interest rates was dampened by concern that the Fed’s move Tuesday to ease bank deposit requirements may take the place of an easing of interest rates, Greenbaum said.

Lower interest rates generally increase the value of bonds.

The federal funds rate, the interest on overnight loans between banks, traded at 7.25%, down from 7.438% late Tuesday.

CURRENCY Dollar Falls Against the German Mark The Persian Gulf peace hopes pushed the dollar sharply lower against the German mark. “The market thinks peace is bad for the dollar,” said David Wilson of Girozentrale New York.

Traders said peace hopes put downward pressure on oil prices, driving prices on the New York Mercantile Exchange down $3.37 to $27.29 a barrel, the cheapest since Aug. 30.

Lower oil prices reduce inflationary pressures, which in turn can lead to lower interest rates: bad news for the dollar. An interest rate cut would eat into the value of dollar-denominated assets.

The dollar--a safe haven that normally attracts buyers in times of trouble--ended at 1.49925 German marks, down sharply from Tuesday’s 1.5030 mark close.

The U.S. currency closed at 133.625 Japanese yen, up from Tuesday’s finish of 133.30 yen.

Although Japan is heavily oil-dependent, the yen failed to garner much strength from the steep drop in oil, suffering from jitters over the health of Japan’s real estate market.

COMMODITIES Gold Futures Dive on Mideast News Gold futures prices plunged on New York’s Commodity Exchange on the perceptions that developments favor a negotiated settlement of the Persian Gulf crisis.

Also helping to push gold lower was the steep plunge in crude oil prices, with the January contract down $3.37 a barrel.

On other markets, grains and soybeans fell and livestock and pork futures climbed.

Gold prices began their plunge on reports from Paris that French Foreign Minister Randolph Dumas said the permanent members of the U.N. Security Council would meet soon to discuss a Mideast peace plan.

“Perception that developments in Middle East favor negotiation rather than otherwise, sent gold prices down sharply,” said Bette Raptopoulos, an analyst with Prudential-Bache Securities Inc. in New York.

Raptopoulos said the possibility of a peaceful solution to the crisis sent crude oil prices plunging, adding to the selloff in gold.

Investors usually buy gold during periods of uncertainty because its value is universally accepted.

Raptopoulos noted that platinum and silver suffered minor losses.

“The end of a war situation will be good for platinum and silver because those are industrial metals,” she said.

Gold settled $4.60 to $4.80 lower, with the contract for delivery in February at $375.80 an ounce; silver was 3 cents to 6 cents lower, with March at $4.238 an ounce.

Market Roundup, D8