Interest Rates Zoom, but Dow Still Rises 7.60 : Market Overview

* New signs of economic growth sent short- and long-term interest rates soaring, as more investors decided that rates have seen their lows for the time being.

* Despite the rise in rates, expectations of new economic growth helped stocks close mostly higher. The Dow Jones industrial average rose 7.60 points to 3,275.27, near the record 3,283.32 hit last week.

Credit

An unexpected rise in the National Assn. of Purchasing Managers’ index for February persuaded many bond investors that hopes of further interest rate cuts have evaporated.

The NAPM index, a gauge of industrial activity, jumped to 52.4% in February from 47.4% in January. A reading above 50% suggests an expanding economy, while a number below that level indicates a shrinking economy.

The news sent the yield on the benchmark 30-year Treasury bond soaring to 7.90% from 7.79% on Friday, as the bond’s price tumbled $12.19 per $1,000 face amount.

Even more disturbing was the rise in short-term interest rates: The discount rate on three-month T-bills jumped to 4.02% from 3.92% Friday. And the Treasury’s weekly auction of new three- and six-month bills produced the highest yields since mid-December.

Rates are rising because investors expect demand for credit to increase with a recovery. Also, once the recovery gets going, it will relieve public pressure on the Federal Reserve to cut interest rates again.

Dan Seto, economist for Nikko Securities, said bond investors have decided to sell now and ask questions later. “It’s early to be very optimistic, but (the NAPM report) is an encouraging sign for the economy,” he said.

The fed funds rate, the rate on overnight loans between banks, rose to 4.31% from 4.19% Friday.

Stocks

While the bond market choked on the NAPM report, the news heartened many Wall Streeters: An economic recovery would translate into a profit recovery for many companies, which should bolster stock prices.

Still, the market’s showing was mixed. Though the Dow industrials inched up 7.60 points, the New York Stock Exchange composite index slipped 0.01 point to 228.20. However, advancing NYSE stocks outnumbered declines 9 to 8.

NYSE trading volume was characteristically moderate for a Monday, at 180.67 million shares versus Friday’s 221.11 million.

Analysts said the NAPM report, along with a Commerce Department report showing that construction outlays rose in January by the largest amount since April, 1991, hinted that the long-awaited recovery may be in sight.

“The NAPM was extremely bullish for equities,” one trader said. “It was something that said, ‘Hey, maybe we are coming out of our mini-depression.’ ”

Among the market highlights:

* Some companies that would benefit most in an economic rebound were big winners. USX Steel was up 1 to 26 3/4, Alcoa rose 1 3/8 to 70 3/4, Caterpillar gained 2 to 50 7/8, International Paper added 1 to 74 7/8, and glass maker Owens-Corning jumped 1 1/4 to 38 7/8.

* Airlines continued to rise, though late in the day some firms backed off from recent fare increases. United Airlines parent UAL rose 5 to 152 1/2, Delta gained 1 7/8 to 70 3/4, and Southwest rose 1 5/8 to 41.

* Brokerage stocks were hot. Morgan Stanley leaped 3 to 59, Merrill Lynch gained 3 3/4 to 59 5/8, and Schwab rose 1 to 34 1/4.

* BankAmerica rose 7/8 to 44 3/8, and Security Pacific soared 1 7/8 to 38 1/4. The U.S. Justice Department said late last week that it won’t challenge their planned merger.

* Many small high-tech stocks continued their hot streak. Among Southland issues, data-storage systems firm FileNet jumped 2 1/4 to 34 1/2, computer wholesaler Merisel gained 5/8 to 14 1/2, and satellite-relay firm IDB Communications soared 1 5/8 to 13 1/2. IDB said it completed a debt financing that will cut interest costs.

In foreign markets, Tokyo stocks closed firmer. The Nikkei average rose 149.01 points to 21,487.82. In London, the Financial Times 100-share average finished down 7.8 points at 2,554.3. In Frankfurt, the DAX average was up 2.74 to 1,747.87.

In Mexico City, stocks reached new highs as the Bolsa index gained 13.74 points to 1,873.87.

Currency

The dollar ended higher on the strong economic news, spurred by the NAPM report.

In addition, traders who had sold dollars short--that is, sold borrowed dollars on the hunch that the NAPM index for February would show a decline--scrambled to buy them back to cut losses.

In New York, the dollar rose to 1.643 German marks from 1.639 Friday. It finished at 129.65 Japanese yen, up from 129.50.

Commodities

Fears of a Midwestern drought helped boost grain and soybean futures prices on the Chicago Board of Trade.

Prices also were lifted by a burst of grain-buying activity by the former Soviet republics.

On other commodity markets, oil prices fell, precious metals were mixed and livestock and meat futures were mixed.

In Chicago, wheat for March delivery rose 6 cents to $4.075 a bushel, March corn rose 2.25 cents to $2.67 a bushel, March oats climbed 3.25 cents to $1.55 a bushel, and March soybeans rose 3.25 cents to $5.835 a bushel.

Elsewhere, light, sweet crude oil for April delivery fell 34 cents to $18.34 a barrel on the New York Mercantile Exchange.

Gold prices slipped on New York’s Commodity Exchange. Spot gold fell $1.60 to $351.40 an ounce, and silver rose 1.4 cents to $4.114 an ounce.

Market Roundup, D10