Financial Markets : Dow Zooms in Reaction to Inflation News

Market Overview

* Blue chip stocks soared, bolstered by evidence of tamed inflation, rebounds in heavily traded stocks and a record-setting rally among transportation shares. The Dow Jones industrial average rose 31.61 points to close at 3,428.09.

* The Treasury long-bond’s price rose more than a point before profit taking stole much of the gain. The rally was a delayed reaction to Friday’s inflation report.

* The dollar fell to another all-time low against the Japanese yen.

Stocks

With fears of inflation subsiding and interest rates tumbling again, the stock market moved higher, led by consumer-product issues that took such a beating last week.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange. Volume on the Big Board came to 261.5 million shares, down from 284.6 million in the previous session.

The Dow transportation index galloped to a new closing high of 1,648.84, a gain of 35.46 points, led by rallies in airline and railroad stocks. Its previous closing high of 1,617.82 was set last Wednesday.

The transportation sector’s rise “suggests a Dow industrial new high is just around the corner,” said Robert Walberg, an analyst at MMS International. The industrial average reached its record high of 3,478.34 on March 10.

On Monday, the market had its first chance to react to last week’s good news on March consumer prices. The bond and stock markets were closed Friday for the Easter holiday.

The Labor Department said prices rose just 0.1%, below the expected 0.3%. That data calmed inflation fears. Adding to the good news on the cost of living was last Thursday’s data on producer prices, which were up just 0.4%.

Among the trading highlights:

* Consumer stocks recovered somewhat after plunging last week on concern that generic products were eating into the profits of brand-name companies. Wal-Mart Stores rose 1 1/8 to 30, Philip Morris added 1 1/4 to 47 1/2, RJR Nabisco was unchanged at 6, and Procter & Gamble jumped 1/2 to 47 1/4, all in heavy trading.

* McDonnell Douglas leaped 3 1/4 to 61 1/2 after it was announced that the company won a major Air Force rocket contract that could be worth up to $1 billion.

* Money center banks gained as investors, watching interest rates drop again, turned to interest-sensitive stocks. Citicorp rose 1 1/8 to 30 1/4 in heavy volume. A block of 8.9 million shares was sold, reportedly by Prince Alwaleed ibn Talal of Saudi Arabia. In February, the prince said he would sell shares to reduce his stake in the company.

* Among other actively traded NYSE issues, Medtronic zoomed 6 5/8 to 59 7/8 after forecasting solid earnings this year. The company’s stock had plunged last week on negative comments from analysts.

* Compaq rose 3 3/8 to 52 1/4 after positive comments from analysts.

* Stone Container, a liner-board producer, rose 1 1/2 to 9 after positive comments from analysts. The stock had plunged last week after a poor earnings forecast.

* In NASDAQ trading, Intel rose 4 1/2 to 117 1/2 after announcing better than forecast earnings. Mathsoft plunged 4 1/8 to 8 1/4 after announcing poor third-quarter earnings.

Many foreign stock markets were closed in observance of the Easter Monday bank holiday.

Prices were little changed in Tokyo, where the 225-issue Nikkei stock average fell 10.04 points, or 0.05%.

Credit

The long-bond’s price gains came on top of last week’s rise of more than 2 1/4 points and are a further signal of the market’s willingness to set aside its recent fear of inflation, which can erode the value of bonds.

The price of the Treasury’s main 30-year bond closed up 3/4 point, or $7.50 per $1,000 in face value, from late Thursday. Its yield, which moves in the opposite direction from price, fell as low as 6.75% before closing at 6.79%, down from late Thursday’s 6.85%.

Most of the advance came in Sunday night trading in the Chicago futures and Tokyo markets, the first with a chance to react to the Labor Department’s release of consumer inflation data. Most financial markets were closed in observance of the Good Friday holiday.

“The impact of the CPI on the market had already played out overnight in Tokyo,” said Anthony Karydakis, senior financial economist at First Chicago Capital Markets. “We didn’t have elsewhere to go but down here.”

Traders saw the consumer price figures as a chance to take profits after a bond market rally on Thursday on news that wholesale prices increased only moderately.

Mild inflation is good news for bond investors because it indicates that fixed returns stand less chance of being eaten by rising prices.

The federal funds rate, the interest on overnight loans between banks, was 3.125%, up from 2.75% late Thursday.

Currency

The dollar fell worldwide against most major currencies in thin, quiet trading. Major European currency markets were closed in observance of Easter Monday.

Overnight in Tokyo, the dollar sank to 112.95 yen, down 0.20 yen from the previous low close on Friday. This was the dollar’s lowest close in Tokyo since modern exchange rates were set in the late 1940s. The dollar now has closed at record lows on six of the last eight trading days in Tokyo and has fallen 12.03 yen, or 9.6%, since Feb. 2.

In New York, the dollar traded at 112.80 yen, down from 113.175 yen late Friday.

The British pound fetched $1.5455, more than late Friday’s $1.5275.

Commodities

Natural gas futures prices rocketed to a five-month high on the New York Mercantile Exchange, fueled by news of tightening supplies.

On other commodity markets, oil futures rose; precious metals were mixed; livestock and meat were mostly higher, and most grains and soybean futures rose.

Natural gas for May delivery soared 11.5 cents to $2.344 per 1,000 cubic feet, the highest settlement for a near-term contract since Nov. 18.

Gold for April delivery fell 60 cents to $337 an ounce on the New York Commodity Exchange. April silver rose 4 cents to $3.87 an ounce.

Market Roundup, D8