Dow Jumps 50.32 on Economy Hopes, Program Trading

Wall Street again defied skeptics and rallied strongly on Thursday, showing little regard for political concerns or other short-term worries.

The Dow Jones industrial average jumped 50.32 points, or 1.6%, to a record 3,280.64, leading a broad surge that saw two stocks rise for every loser on the New York Stock Exchange. Volume was heavy at 270.65 million shares.

As has been the case since mid-December--when this rally started--analysts said investors seemed driven Thursday by two powerful beliefs: That an economic recovery will happen this year, and that interest rates either will remain moderate or drop further.

A wave of computerized program trading also helped lift stocks, Wall Streeters said. That trading was related to the expiration today of some major stock index options. Some traders were forced to buy stocks to close out their positions in the option contracts.

What’s most striking about this week’s market strength is that it has occurred against the backdrop of the New Hampshire presidential primary. Because President Bush fared poorly in the primary, conventional wisdom on Wall Street was that investors would sell stocks on fears that the Republicans could lose the White House in the November election.

But A. C. Moore, analyst at Argus Investment Management in Santa Barbara, said that historically, “the market is not politically oriented unless there’s . . . a major tangible shift” in political power. It’s too early to call such a shift, Moore said, so Wall Street chose to largely ignore New Hampshire.

What investors can’t ignore, however, is the feeling that the economy is poised to rebound this year, Moore said. And while bearish analysts say a recovery remains iffy, Moore argues that the stock market’s ability to predict the economy is extraordinary.

“Since the turn of the century, all significant bull market moves that occurred in a recession were followed by an economic expansion,” Moore said.

Even so, economic indicators reported Thursday continued to show a struggling economy. The government said initial jobless claims rose 18,000 to 452,000 in the week that ended Feb. 8.

That news may actually have cheered some investors, however, because it raises hopes that the Federal Reserve may cut interest rates further to ensure an economic rebound.

A rise in long-term bond yields since December had spooked some investors. But Thursday, bond yields stabilized, suggesting that the recent rate spike is peaking.

“As it becomes clear that the economy is still fairly sluggish, bond yields will come down,” said Gary Schlossberg, economist at Wells Fargo Bank.

The Dow’s close of 3,280.64 surpassed the previous record of 3,276.83 set Feb. 12. However, some analysts expressed concern that broader market indexes are failing to rise with the Dow to new highs.

The Standard & Poor’s 500-stock index, for example, surged 5.64 points Thursday, or 1.4%, but its close of 413.90 was below the record of 420.77 set in January.

If the broad indexes fail to follow the Dow, stocks could be vulnerable to at least a short-term pullback before buyers emerge in force again, some analysts say.

Among the market highlights:

* The Dow was paced by Disney, up 6 1/8 to a record 151 3/4; Merck, up 3 1/8 to 147 1/4; International Paper, up 2 1/4 to 77 3/4, and General Electric, up 2 to 80 3/8.

* Auto stocks continued to rise on expectations of a sustained sales turnaround. GM rose 5/8 to 39, Ford added 1/2 to 38 5/8, and Chrysler jumped 1 to 17 3/4.

Meanwhile, motorcycle maker Harley-Davidson shot up 5 1/4 to 53 1/2 after it released upbeat fourth-quarter earnings.

* Technology stocks surged. Apple Computer jumped 2 5/8 to 64 5/8, Intel gained 2 1/4 to 66, Hewlett-Packard surged 3 1/8 to 76 5/8, PictureTel leaped 3 to 52, and Computer Sciences was up 1 7/8 to 81 1/4.

* Among the losers, Marvel Entertainment lost 2 1/8 to 52 7/8. The Times reported Wednesday that a rival comic book publisher, Malibu Graphics, has hired away eight Marvel artists and creators.

* Stocks of banks and mortgage companies rose after a Smith Barney analyst said profit taking was the most likely explanation for recent weakness in the sector. Federal National Mortgage Assn. gained 7/8 to 62 7/8, and Federal Home Loan Mortgage rose 1 to 113 7/8.

In overseas trading, shares closed higher in Tokyo, Frankfurt and London. Tokyo’s 225-share Nikkei average rose 153.62 points to 20,771.92. Frankfurt’s 30-share DAX average closed up 15.39 at 1,703.18, highest since June. London’s Financial Times 100-share average was up 6.7 points at 2,543.4.

Credit

Bond yields stabilized as investors weighed new economic reports against concern about a fresh supply of bonds and notes coming to the market.

The price of the Treasury’s 30-year bond, which surged 25/32 point Wednesday, gained 1/32, or about 31 cents per $1,000. The bond’s yield held at 7.91%.

Though Thursday’s economic reports suggested continued weakness, some bond traders fear that the Treasury’s massive appetite for debt will continue to leave the market with too much supply relative to the number of buyers.

For example, the Treasury is expected to soon auction $24 billion in two-year and five-year notes.

The federal funds rate, the interest on overnight loans between banks, was at 4%, unchanged from Wednesday.

Currency

The dollar was mixed, falling in Europe but rising in the United States.

Analysts said the greenback rallied overnight in Asia, where the Bank of Japan sold the U.S. currency to try to support the yen. But dealers said the effort was largely unsuccessful, and the dollar advanced worldwide against the yen.

In New York, the dollar edged up to 1.645 German marks from Wednesday’s 1.644. It rose to 128.60 Japanese yen from 128.20.

Commodities

Slack demand for hogs and pork products triggered a steep drop in frozen pork belly futures prices as traders foresaw a build-up of raw bacon in cold storage.

Elsewhere, silver ended a five-day slide on New York’s Commodity Exchange with a rally that erased more than a third of recent losses. Silver for March delivery rose 6.8 cents to $4.123 an ounce; February gold rose 20 cents to $353.20 an ounce.

Crude oil prices rose modestly on New York’s Mercantile Exchange after Saudi Arabia announced a 5% reduction in the amount of oil it will sell to U.S. companies.

Light, sweet crude for March delivery rose 13 cents to $18.54 a barrel.

Market Roundup, D8