FINANCIAL MARKETS : Bond Rally Powers Dow to Record : Market Overview
Stocks closed at record highs, powered in late-afternoon trading by a strong rally in the government bond market.
* Long-term Treasury bond yields plunged to the lowest levels in two weeks, fueled by unexpectedly brisk demand at the Treasury’s monthly note auction.
* The dollar plunged to a record low against the Japanese yen as falling interest rates and fresh signs of a sluggish economy undermined the currency. Gold prices fell.
Credit
Stocks took off late in the session as bonds prices surged more than a point.
The Dow Jones industrial average soared 23.53 points to a record 3,540.16, outrunning the previous all-time high of 3,523.28 set last Thursday. It was the Dow’s fourth record close this month.
In the broader market, advancing issues outnumbered decliners by nearly 2 to 1 on the New York Stock Exchange. Big Board volume was a relatively heavy 274.19 million shares, up from 222.09 million on Tuesday.
Broad-market indexes also rose. The American Stock Exchange market value index set a new high, rising 3.06 to a record 437.13. The NYSE’s composite index added 2.20 to 249.90. The NASDAQ composite gained 9.05 to 704.09.
The drop in interest rates drove stock prices higher, said James Schroeder, market analyst at MMS International in Chicago.
Stocks were also supported by a drop in gold prices, which eased earlier concerns about inflation.
Among the market highlights:
* Banking and financial stocks rose sharply as interest rates fell. The Federal National Mortgage Assn. rose 2 to 78, and Chemical Banking Corp. advanced 1 7/8 to 39 1/4.
* Technology stocks were strong. Federal Reserve Board Chairman Alan Greenspan said employment in the computer and information technology industries will rise. IBM rose 2 3/8 to 52 3/4.
* Compaq rose 3 to 59 1/4. The company said it led the European portable personal computer market in the first quarter.
* Intel soared 6 3/4 to 110 1/2 in over-the-counter trading. Merrill Lynch raised its 1994 earnings estimates, saying the company will produce more of its new Pentium microprocessors next year than is generally expected.
* Novell lost 2 3/8 to 29 7/8 in active trading on the NASDAQ. Lehman Bros. and Piper Jaffray Inc. downgraded the stock, citing concerns about future revenue growth.
* Reynolds Metals fell 1 to 46 7/8 after steel and aluminum workers authorized strikes against that company and Alcoa, if contract talks fail. Alcoa fell 1/2 to 68 3/4.
Credit
Bonds also rose in reaction to a prediction by House Speaker Thomas Foley that House Democrats will rally behind President Clinton’s tax bill. The bill is scheduled for a vote in the House on Thursday.
The yield on the Treasury’s main 30-year bond tumbled to 6.92% from 7.01% on Tuesday. The plunging yield pushed prices up a sharp 1 5/32 points, or $11.56 per $1,000 in face value. The price moves in the opposite direction from the yield.
It was the long bond’s lowest yield since it closed at 6.85% on May 12.
Bond prices inched up in early trading after the government reported that new orders to factories for durable goods showed virtually no improvement in April after plunging in March.
But the advance accelerated after the Treasury reported it sold $11 billion in five-year notes at a high yield of 5.39%, which was better than expected.
Following the auction, the note’s yield fell to 5.27% as prices soared in secondary-market trading. The bid-to-cover ratio, a measure of Treasury auction demand that compares the number of bids offered to those accepted, was a brisk 3.10 to 1.
The federal funds rate, the interest on overnight loans between banks, rose to 3.375% from 3.188% late Tuesday.
Other Markets
The dollar spiked higher briefly after comments by Lawrence Summers, U.S. Treasury undersecretary for international affairs, who indicated that the Clinton Administration is not interested in seeing further appreciation of the yen.
But the U.S. currency soon returned to its downward path against the yen.
The dollar hit an all-time low of 108.50 yen in late New York trading, compared to 109.36 yen at Tuesday’s U.S. close. Its five-month slide gained momentum after a U.S. Treasury report Tuesday suggested a sustained yen rise could slash the U.S. trade deficit with Japan.
The greenback declined to 1.628 German marks, down from 1.630.
In commodities trading, gold and silver futures fell sharply on New York’s Comex, extending a volatile period in the precious-metal markets.
The metals were hit by talk of rising Russian gold reserves and weakening Chinese gold demand.
Gold bullion for current delivery settled at $375.20 an ounce, down $3.30 from Tuesday, and silver settled at $4.549 an ounce, down from $4.629 on Tuesday.
Elsewhere, crude oil futures weakened in trading on the New York Mercantile Exchange. Light, sweet crude oil for July delivery fell 1 cent to $19.89 a barrel.
Market Roundup, D6
