FINANCIAL MARKETS : Dow Leaps as Investors Bet on a Rate Cut

Market Overview

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

* Wall Street jumped out of its summer doldrums as bargain hunting and renewed expectations of lower interest rates spurred a broad rally.

The Dow Jones industrial average soared 37.45 points to 3,319.86, its biggest gain since it rose 42.04 points on May 4.

* The Brazilian stock market plummeted 14% as concern mounted about the country’s growing political scandal.

* Treasury bond yields eased further as news of anemic May home sales solidified the case for a weakening economy.

Stocks

Stocks surged as investors took advantage of deeply depressed prices on many issues--the result of weeks of painful market declines.

Traders said many buyers were reacting to rumors that the Federal Reserve will lower interest rates again--possibly this week. The Fed’s policy-making Open Market Committee begins a regularly scheduled meeting today.

Pressure on the Fed increased Monday after a report showed a 5.6% decline in new home sales in May. The news was yet another indication that the economic recovery is slowing.

Many experts believe that the Fed is certain to act if the June employment report, due Thursday, confirms renewed weakness in the economy.

Apart from the interest-rate backdrop, however, many traders said stocks were poised for a technical rebound after a long period in the doghouse. Computerized program trading also helped drive the market late in the day.

The issues that were strongest Monday included many battered small stocks. The NASDAQ composite index soared 10.96 points to 558.80, a 2% rise. The Dow, in contrast, rose 1.1%.

Some also suggested that Ross Perot’s slide in some presidential election polls was helping the market. “I sense Perot’s topped out. The market hates uncertainty and he represents major uncertainty,” said Alfred Goldman, chief market strategist at brokerage A. G. Edwards & Sons.

On the New York Stock Exchange, advancing issues outnumbered declines by more than 2 to 1.

However, volume was only moderate at 176.75 million shares, up from Friday’s 154.78 million. The entire week is expected to be slow because of the July 4 holiday. Markets will be closed Friday.

Among the market highlights:

* Technology stocks led the rally. Many have been extremely depressed for weeks on worries about computer price wars and the general economic slowdown.

Microsoft soared 5 1/2 to 72 1/4, IBM was up 1 3/8 to 98 5/8, Novell jumped 2 1/2 to 53, Sun Microsystems gained 1 3/4 to 24 7/8, BMC Software rocketed 5 3/8 to 45, Intel zoomed 2 1/2 to 57 3/4, and Compaq added 1 5/8 to 25 3/8.

* Health care issues, also under pressure lately, posted strong gains. Tokos Medical leaped 3 to 29, U.S. Healthcare rose 4 to 50 5/8, Amgen soared 3 1/2 to 61, Pfizer was up 2 1/4 to 74 1/4, and U.S. Surgical rebounded 5 1/4 to 96 3/8.

* Industrial and transportation stocks were up sharply on the expectation that they would benefit if an interest-rate cut helps spur new economic growth.

Among industrials, Caterpillar rose 1 1/2 to 52 7/8, Deere leaped 1 5/8 to 42 1/2, Eaton advanced 1 3/8 to 79 5/8, Inland Steel added 1 to 26, and machine-tool maker Cincinnati Milacron rocketed 1 3/8 to 14 5/8.

Among transports, Federal Express gained 2 1/2 to 42 3/4, Roadway advanced 3 1/4 to 64 3/4, rail giant CSX rose 1 7/8 to 63, and USAir leaped 1 5/8 to 12 3/8.

USAir was reported to be in talks to acquire much of rival TWA. Airline stocks in general rose on that news, on the hope that further consolidation in the industry might ease fare wars.

* DF Southeastern, a Georgia S&L;, jumped 9 1/2 to 28. Banking giant First Union agreed to acquire the company through an exchange of stock.

* Among the losers, Waste Management tumbled 2 3/4 to 34 3/8. The garbage company estimated that second-quarter earnings will fall short of estimates. It blamed weak prices in the soft economy.

* Among Southland issues, Glacier Water lost 1/4 to 9 5/8. The Robertson Stephens Orphan fund said it has acquired a 9.8% stake in the water vendor for investment purposes.

Also, Callaway Golf added 7/8 to 19 5/8. After the market closed, the firm said it withdrew a proposed secondary offering of stock because of weak market conditions.

Among overseas markets, Brazil’s Sao Paulo exchange collapsed amid growing fears about the scandal surrounding Brazilian President Fernando Collor de Mello. The Bovespa index sank 3,234 points to 18,925, a 14% plunge. New charges surfaced Monday linking Collor’s aides to influence-peddling schemes. In the U.S., the NYSE-traded Brazil Fund slid 1 1/8 to 15 3/4.

In Mexico City, the Bolsa index continued to stabilize, adding 2.41 points to 1,603.38.

In Tokyo, however, stocks hit a new 73-month low. The Nikkei index dropped 71.46 points to 15,741.27.

Shares also ended lower in London. The Financial Times 100-share average closed down 18.3 points to 2,515.8. In Frankfurt, the DAX average ended up 2.99 points to 1,757.12.

Credit

Interest rates fell across the board, especially on three- and six-month Treasury bills, as investors bet the Federal Reserve is certain to lower rates again soon.

The Treasury sold new three-month bills at an average discount rate of 3.59%, down from 3.67% last week.

Meanwhile, the yield on 30-year T-bonds eased to 7.77% from 7.78% Friday, as the bond’s price rose 3/32 point, or 94 cents per $1,000.

The weak May housing sales report merely bolstered the case for lower interest rates that many bond investors have been touting for weeks.

But some traders said the relatively small decline in long-term rates Monday showed that some investors fear another Fed rate cut could fuel inflation in the long run.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.50%, up from 3.25% late Friday.

Currency

The dollar was mixed in lackluster trading, with the report showing weak home sales provoking limited selling.

The dollar slid to 1.513 German marks in New York, down from 1.539 Friday. But it rose to 125.80 Japanese yen, up from 125.70.

Commodities

South African unrest and signs of freshening demand fed an explosive rally that lifted platinum futures prices to a four-week high Monday on the New York Merc.

Platinum for July delivery soared $16.60 to $377 an ounce in New York, the contract’s highest daily settlement since June 2.

The heavily traded October contract jumped $16.70 to $384.80.

On New York’s Comex, gold for August rose $1.20 to $345.10 an ounce, and July silver climbed 3.3 cents to $4.00.

Meanwhile, oil futures retreated on the New York Merc, with light, sweet crude oil for August delivery falling 20 cents to $22.24 a barrel.

Market Roundup, D8