FINANCIAL MARKETS : STOCKS : Dow Rebounds 20.05 on Investor Optimism

Stocks closed higher Friday, reversing Thursday’s downturn and notching up a 100-point rise for the week on hopes that lower interest rates might drag the nation out of recession.

The Dow Jones industrial average closed 20.05 points higher at 2,830.69.

In the broader market, advancing issues outnumbered declines in nationwide trading of New York Stock Exchange-listed stocks, with 974 up, 618 down and 455 unchanged.

Big Board volume came to 187.84 million shares, down from Thursday’s 292.19 million.

“We haven’t seen an explosion in breadth and volume like this since 1982,” said Kenneth Spence, director of Salomon Bros.’ technical analysis group.

He noted that stocks have soared despite the Persian Gulf War and some corporate earnings disappointments, on hopes that the worst news is over.

Hope is growing among investors that the economy--taking comfort from recently lowered interest rates--may avoid a deep and long recession, analysts said.

But investors may take a more sober view next week.

Traders also wondered how much buying interest remained on the sidelines after profit taking Thursday drove the Dow industrials down 20 points.

“Even though I think the market is overextended, I’m impressed that profit taking hasn’t done much damage,” said Robert Stovall, president of Stovall/21st Advisers Inc. “What you’ve got is a war of nerves between the people who want to get in and those who want to get out.”

Among the market highlights:

* Drug stocks were among the strongest performers. Eli Lilly added 3 1/2 to 77 3/8, Pfizer gained 3 5/8 to 96 5/8, Syntex Corp. rose 2 1/2 to 69 3/8, Merck & Co. rose 2 to 97 1/2, American Home Products rose 1 to 55 and Johnson & Johnson climbed 7/8 to 77 1/4.

* Western Digital fell 1 7/8 to 4 1/2 on investor disappointment over a fourth-quarter operating loss.

* Orion Pictures added 1 3/8 to 12 5/8. Wall Street sources said several investors, including Sony Corp., have expressed interest in equity stakes or in an acquisition.

* General Motors added 1 3/8 to 12 5/8. Shearson Lehman upgraded its opinion on the stock to buy from sell.

* Technology stock gainers included Compaq Computer, up 1 7/8 to 71 3/8; International Business Machines, up 1 to 129 1/2; Apple Computer, up 2 1/8 to 59 7/8; Cisco Systems, ahead 2 1/8 to 59, and BMC Software, up 2 1/4 to 41 3/4.

In Germany, a burst of optimism based on the premise that no news is good news swept German shares to just below their highest levels this year. The DAX index of 30 leading shares rose 31.56 points on the day to 1,467.82.

Tokyo stocks ended firmer with the 225-share Nikkei average up 191.65 points at 24,296.08.

Shares ended slightly higher in light trading on London’s Stock Exchange in the absence of any major investment news. The Financial Times-Stock Exchange 100-share index was up 1.5 points at 2,245.2.

Credit

Bond prices rose on optimism about the Treasury’s successful quarterly auction and signs that the Federal Reserve may ease interest rates further, traders said.

The Treasury’s bellwether 30-year bond rose 3/4 point, or $7.50 per $1,000 in face amount. Its yield, which moves in the opposite direction to price, fell to 7.95% from 8.06% late Thursday.

Traders said the successful conclusion this week of the Treasury’s three-part quarterly refunding auction set the stage for the bond market’s tone Friday.

The Treasury’s sale Thursday of $11 billion in 30-year bonds did not attract overwhelming buying interest, but it was not considered a poor showing, said James Marshall, a trader with the Chicago investment firm Clayton Brown & Associates.

The refunding began Tuesday with the sale of $12.65 billion of three-year notes and continued Wednesday with the auction of $11 billion of 10-year notes.

The large debt auctions are held four times a year to replenish the government’s coffers. This quarter’s refunding was $250 million larger than the previous record set last November.

Bond prices have been rising since the Federal Reserve reduced a key lending rate--the discount rate--last week. Some experts believe that the central bank will lower interest rates even further to boost the sluggish economy.

Lower rates boost the price of bonds, since rates move in the opposite direction of price.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6% at late afternoon, down from 6.25% late Thursday.

Commodities

Precious metal futures prices rose for a second day, extending a rebound from recent sharp losses amid buying prompted by a feeling that a ground war for Kuwait was imminent.

On other commodity markets, oil futures also rose, coffee futures were sharply higher, grains and soybeans advanced and livestock and meat futures were mixed.

Gold futures settled $2.30 to $2.50 higher on New York’s Commodity Exchange, with the contract for delivery in February at $370.10 an ounce; silver was 1.7 to 2.1 cents higher, with March at $3.833 an ounce, and platinum futures finished $2.50 higher across the board on the New York Mercantile Exchange, with April at $383.10 an ounce.

Oil prices rose modestly on the New York Merc after a spreading oil slick in the Persian Gulf forced the closing of a desalination plant in Saudi Arabia and stirred concerns that oil refining could be cut back.

Forecasts for more frigid weather in Europe and a return to normal winter temperatures in the United States also supported energy futures, analysts said.

Light sweet crude oil settled 5 cents to 70 cents higher, with March at $21.92 a barrel; heating oil was 0.91 cent to 1.7 cents higher, with March at 67.22 cents a gallon; unleaded gasoline was 0.38 to 0.80 cent higher, with March at 61.22 cents a gallon, and natural gas futures were 1.9 cents lower to 0.5 cent higher, with March at $1.365 per 1,000 cubic feet.

Coffee futures soared on New York’s Coffee, Sugar & Cocoa Exchange, aided by indications of tight near-term availability of Central American beans.

Coffee settled 1.25 to 3.3 cents higher, with March at 87.25 cents a pound.

Grain and soybean futures rose modestly on the Chicago Board of Trade, erasing some of the losses posted earlier in the week as traders evened up their positions ahead of the weekend.

Wheat futures finished 1 1/2 to 3 cents higher, with March at $2.52 3/4 a bushel; corn was 1 cent to 2 1/4 cents higher, with March at $2.40 1/4 a bushel; oats were 2 1/2 to 3 cents higher, with March at $1.11 a bushel, and soybeans were 2 to 5 cents higher, with March at $5.68 3/4 a bushel.

Cattle futures retreated on the Chicago Mercantile Exchange, pressured in part by sluggish retail beef demand. Pork futures rose in line with higher cash hog prices.

Live cattle were .35 cent lower to .12 cent higher, with February at 78.47 cents a pound; feeder cattle were .05 cent to .25 cent lower, with March at 88.47 cents a pound; hogs were unchanged to .70 cent higher, with February at 52.57 cents a pound, and frozen pork bellies were .47 cent lower to .70 cent higher, with February at 63.92 cents a pound.

Market Roundup, D6