Bond Rally Helps Push Dow Up 51.87 : Stocks: Unexpected good news on Chrysler profit also cheers investors.

Paced by a strong rally in the bond market and better-than-expected earnings from Chrysler Corp., the Dow Jones industrial average soared 51.87 points Tuesday to close at 3,334.07.

“A number of factors contributed to the stock market’s firm tone, but by far the most important was the drop in long-term interest rates,” said Michael Metz, chief strategist at Oppenheimer & Co., a New York-based brokerage firm.

He also said investors were encouraged by the strong relative performance of U.S. stocks compared to those in Japan, which recently hit a six-year low, and those in Europe, which are also deeply depressed. Volume on the Big Board swelled to 218 million shares from 164.7 million Monday, as 1,387 stocks advanced and 438 declined.

Strong demand for 30-year Treasury bonds drove prices up $10 per $1,000 bond and yields down to 7.43% from 7.52% Monday. “We’re approaching the lows we saw in early Janaury, when yields bottomed at 7.39%,” said Mary Rooney, an economist at S.G. Warburg & Co., a dealer in government securities.

Underlying the strong demand for bonds, Rooney said, was a growing conviction among investors that inflation is under control, and the economy is on the ropes. She said there is strong demand for 30-year Treasuries.

The bond market rally also was fueled by sagging consumer confidence. The Conference Board’s closely watched index sank 11.6 points to 61. Continuing signs of a weak economy provide support for bond prices by enhancing the possibility that the Fed will cut interest rates to stimulate demand.

“Lower rates translate into easier credit and corporate profits,” said Mark Donahoe, managing director at Piper, Jaffray & Hopwood Inc. in Minneapolis.

Metz of Oppenheimer added that low long-term rates could fuel a surge in capital investments, further stimulating the economy.

Stock traders said Chrysler’s report that it earned $178 million, 54 cents a share, in the second quarter also galvanized investors. The results exceeded market expectations of 19 cents a share and fueled hopes that Ford Motor Co. and General Motors Corp. would also exceed expectations.

All the major markets participated in the rally. The NASDAQ index climbed 6.90 to 571.63 while the Standard & Poor’s composite index of 500 stocks jumped 5.98 to 417.52. The NYSE composite index of all listed common stocks rose 3.03 to 229.54. The Wilshire Associates Equity Index--the market value of NYSE, American and NASDAQ issues--was 4,020.927, up 53.118, or 1.34%.

Among the market highlights:

* Chrysler, the most active NYSE issue with more than 6 million shares traded, rose 1 11/16 to 21 3/4. Other Big Three stocks also rose, with Ford up 1 3/4 to 45 3/4 and General Motors up 1 1/2 to 41 3/8.

* Among other active NYSE issues, Boeing fell 1/4 to 39, Pepsi rose 1 1/4 to 37 1/2, Kmart gained 1/4 to 23 and Philip Morris rose 1 5/8 to 78 1/2.

* USX-Marathon fell 3/8 to 21 7/8 in active trading. The oil company posted higher net income, but sales were off. USX-Marathon also benefited from several one-time gains.

* Johnson & Johnson rose 1 5/8 to 48 3/4 after dropping an antitrust lawsuit against rival U.S. Surgical, which rose sharply before falling back to finish unchanged at 95 1/4. The lawsuit involved a U.S. Surgical device used in minor surgery.

* American Express rose 1/4 to 23. After trading Monday, the charge card and travel company reported a second-quarter earnings rise but continued problems in its core businesses.

Overseas, stocks closed higher in London and Tokyo but fell in Frankfurt. London’s Financial Times 100-share average finished up 24.4 points, or 1.1%, at 2,372.4, while Tokyo’s 225-share Nikkei average closed up 53.30 points at 15,426.64. In Frankfurt, the 30-share DAX index dropped 7.45 points to 1,610.64, wiping out Monday’s modest gains.

Credit

Long-term bond prices rose a point after the Conference Board’s widely followed survey showed consumer confidence tumbled in July.

The price of the Treasury’s bellwether 30-year bond rose 1 point, or about $10 per $1,000 in face amount. Its yield, which falls when prices rise, was 7.43%, down from 7.51% at Monday’s close.

The stage for the bond rally was set early in the day with the Labor Department’s release of its Employment Cost Index, said Dan Silagi, chief international economist with Stone & McCarthy Research Associates Inc. The index showed Americans’ wages and salaries edged up just 2.9% in the year ended in June, failing to keep up with inflation and posting the smallest increase in at least a decade.

A low-inflation scenario is good for Treasuries because cost-of-living increases erode the value of fixed-income securities such as bonds.

But the real impetus for the rally, Silagi said, was the consumer confidence index, which tracks consumers’ level of financial security on a monthly basis. It raised hopes that the Federal Reserve might again ease interest rates, which would benefit bonds.

In the secondary market for Treasury bonds, short-term maturities were 1/16 to 3/32 point higher, intermediate maturities were 1/16 point to 3/8 point higher, and long-term issues were 1/2 point to 1 point higher, the Telerate Inc. financial information service reported.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The federal funds rate, the interest on overnight loans between banks, fell to 3.188% from 3.255% late Monday.

Commodities

Platinum futures settled sharply lower on New York’s Mercantile Exchange on news of a labor agreement at a South African mine.

On other markets, gold was higher and silver lower, grains and soybeans were mostly higher, livestock and meat were mostly higher, cocoa edged higher and energy futures were lower.

October platinum settled $3.60 lower at $374.90 an ounce on news that operators of the Impala mine in South Africa reached a wage and profit-sharing agreement with unionized workers.

The agreement takes away the threat of a strike at the world’s largest platinum mine and in turn the threat of supply interruptions.

August gold settled $1 higher at $358.90 an ounce on New York’s Commodity Exchange, with support coming from the weak dollar. Gains were limited by substantial producer selling, Steel said. September silver settled 0.5 cent lower at $3.948 an ounce in lackluster trading.

Energy futures settled lower on the New York Mercantile Exchange, with crude oil losing early gains after statements by U.S. officials that an attack on Iraq is not imminent. September light, sweet crude oil closed 1 cent higher at $22.05 a barrel.

Currency

The dollar fell in global currency trading following the release of disappointing data on the U.S. economy.

Analysts said the dollar was lower in overseas markets and continued to decline in choppy trading following release of the report that showed consumer confidence in the U.S. economy plunged in July.

The data aroused new speculation of lower U.S. interest rates to stimulate economic growth. Lower interest rates make dollar-denominated securities less valuable to investors.

The dollar appeared ready to test key support levels against the German mark. The U.S. currency held up best against the Japanese yen, which has been declining.

Trading was hectic in early domestic dealings and then tapered off, which is typical of summer activity. Dealers are awaiting further government reports on the state of the economy, which will come Thursday with the release of data on second-quarter gross domestic product, weekly jobless claims and new-home sales.

In New York, the dollar settled at 1.473 German marks, down from 1.481 late Monday, and fell to 127.45 Japanese yen, down from the previous day’s 127.50 yen. The British pound rose to $1.931 from Monday’s $1.919.