Falling Rates Help Propel Dow Up 11.85

Market Overview

Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:

* Bond yields fell sharply as the market anticipated favorable reports on inflation this week.

* The bond rally helped pump up stock prices, pushing many key indexes to record highs. The Dow Jones industrial average rose 11.85 points to 3,054.11.

Stocks

Stock prices opened firm and stayed up, as money continued to pour into the market.

By the close, advancing issues outnumbered declining ones nearly 2 to 1 on the New York Stock Exchange. Big Board volume surged to 199.54 million shares from 129.06 million Monday.

While the Dow index remains below its all-time high of 3,077.15 set on Oct. 18, two broader indexes hit new highs on Tuesday: the NYSE composite, up 1.93 points to 219.00; and the Standard & Poor’s 500, up 3.62 points to 396.74.

Also, the NASDAQ composite index of smaller stocks, which has been hitting new highs almost daily, continued to lead the market. The index hits its fourth consecutive record, up 4.97 points to 555.68.

“The second- and third-tier stocks are still outperforming,” said Jeffrey Kaminsky, trader at Mabon Securities. Investors are betting that smaller companies “are better-positioned to take advantage of the economic turmoil” facing the nation, he said.

Also, the leading stocks on Tuesday were food and drug issues, which are often “safe haven” stocks when investors fear a rough economy ahead.

Among the highlights:

* Gainers in the food industry included Kellogg, up 2 3/8 to 107; Sara Lee, up 1 1/2 to 48 7/8; General Mills, up 1 7/8 to 67 5/8, and Chiquita Brands, up 1 1/2 to 42 1/2.

* In the drug sector, Merck led the pack, up 4 1/4 to 139 3/4. Other winners included Glaxo, up 1 1/4 to 29 3/4; Syntex, up 1 1/2 to 42 7/8; Pfizer, up 1 7/8 to 70 7/8, and Schering Plough, up 5/8 to 64 3/4.

* Buyers were active in other health care areas as well. Among Southland NASDAQ issues, three medical-equipment company stocks were strong: Sunrise Medical, up 1 5/8 to 32 7/8; Tokos Medical, up 1 1/2 to 36 1/4, and Mentor Corp., up 2 1/8 to 13 5/8 on heavy volume.

But San Diego-based Medical Imaging Centers lost 1 to 4 3/8 after reporting a quarterly loss.

* Among Dow index stocks, Eastman Kodak jumped 2 3/4 to 48 1/2. Brokerage Smith Barney added the stock to its recommended list.

* Among defense stocks, McDonnell Douglas soared 4 5/8 to 77, a new 1991 high. Goldman Sachs raised its rating on the stock to buy from hold, citing the “increasing likelihood” that the firm will find an Asian partner for its commercial jet business. The brokerage also raised its 1992 earnings estimate for McDonnell to $9 a share from $8.

Meanwhile, Raytheon gained 2 1/8 to 81 5/8. The Bush Administration wants approval to sell its Patriot missiles to Saudi Arabia.

* BankAmerica fell 1 1/2 to 38 7/8. Prudential Securities changed its rating on the stock to sell from hold, saying it believes that the California economy’s problems in the year ahead will significantly affect the banking giant.

In Tokyo, stocks rebounded after a string of losses. The Nikkei average jumped 434.74 points to 24,667.73.

Share prices finished higher in London. The Financial Times 100-share average rose 20.6 points to 2,575.5.

In Frankfurt, the DAX index added 12.20 points to 1,621.22.

Credit

The price of the Treasury’s 30-year bond soared 1 1/32 point, or $10.31 per $1,000 in face. That pushed the yield down to 7.79% from 7.87% last Friday. The bond market was closed Monday for the Veterans Day holiday.

Traders said investors continued to chase bonds on expectations that this week’s inflation reports for October--the wholesale price report due today and the consumer price report due Thursday--will show inflation well under control.

That would leave the door open to further interest rate cuts by the Federal Reserve. However, some traders noted that yields on shorter-term bonds inched higher Tuesday after a Times story reported that the Fed is balking at any more interest rate cuts this year.

The federal funds rate, the interest on overnight loans between banks, was 4.675%, unchanged from Friday.

Currency

The dollar was mixed against other currencies as traders continued to speculate about the direction of interest rates in the United States and overseas.

Some analysts said the dollar drew a bit of support from Tuesday’s Times story, which suggested that Federal Reserve officials want no further rate cuts soon.

The dollar was little changed against the German mark in New York, edging up to 1.640 marks from 1.639 Monday. It fell to 129.95 Japanese yen from 130.05.

Commodities

Oil prices fell for a seventh straight session, dragged down by plunging gasoline and home heating oil futures.

But after the market closed, the American Petroleum Institute reported that the nation’s supply of gasoline had fallen to its lowest level since 1973. That could spark a new rally.

Light, sweet crude for delivery in December settled at $22.50 per barrel, down 8 cents, on the New York Mercantile Exchange. Since the beginning of last week, it has fallen $1.32 per barrel.

Meanwhile, platinum firmed amid reports that a strike by 35,000 South African miners shut down Impala Platinum Ltd., the world’s second-largest producer. January platinum gained $3.90 to $364.40 an ounce on the New York Merc.

The December gold contract rose 50 cents to $356.70 an ounce on New York’s Comex. December silver advanced 2.8 cents to $4.04.

Market Roundup, D8