Dow Rebounds from Selloff; Yields Drop : Market Overview

* Waves of program buying pushed stock prices higher as a strong bond market helped the market rebound from Wednesday’s selloff. Some upbeat earnings forecasts also helped.

* Long-term Treasury bond yields flirted with 16-year lows amid reports of continuing economic weakness.

* The dollar resumed its powerful rally against the German mark, soaring past the important 1.70-mark level. But the dollar retreated against the Japanese yen.

Stocks

Gloom over the economy and corporate earnings appeared to lift a bit, and investors went hunting for bargains.

Stocks drifted at moderately higher levels for most of the day, then surged late on computer-guided, futures-related buying.

The Dow Jones industrials finished with a gain of 23.80 points at 3,490.61, erasing much of Wednesday’s 30-point loss.

In the broader market, advancing issues outnumbered declines by about 7 to 5 on the New York Stock Exchange, though volume slowed to 267.45 million shares.

Before trading began, the Labor Department reported that initial applications for unemployment insurance totaled 353,000 last week, the highest level in nine weeks, up 8,000 from the week before. Analysts had predicted a slight decline.

But a continuing decline in long-term interest rates may have offset much of the concern about the slowing economy, traders said.

Among the market highlights:

* A rosy income preview from Goodyear Tire helped bolster confidence--especially in light of the many disappointing earnings “pre-announcements” from companies in recent days.

Goodyear, a component of the Dow average, gained 1 3/4 to 40 3/4 after saying second-quarter earnings should be $130 million to $140 million, up from $107 million a year earlier.

* Many other industrial stocks also advanced. Alcoa rose 7/8 to 68 1/2, Graco gained 5/8 to 32, Cummins Engine added 7/8 to 84 1/2 and W.R. Grace jumped 1 3/8 to 40 5/8.

But Stanley Works slumped 3 1/2 to 41 7/8. The tool and hardware company said its second-quarter income will fall short of year-earlier levels.

* Defense stocks were broadly higher. Lockheed soared 1 5/8 to 66, Northrop surged 1 1/2 to 41 5/8, Raytheon added 1 5/8 to 60 3/4 and General Dynamics rose 1 5/8 to 85 1/2.

* Financial stocks surged as interest rates eased again. Travelers zoomed 1 7/8 to 32 3/4, SunAmerica jumped 1 3/4 to 33 1/2, Coast Savings rose 7/8 to 15 3/8 and BankAmerica was up 1 3/8 to 44 3/8.

* Besides Goodyear, two other notable companies helped investor sentiment with upbeat reports on business. Carnival Cruise Lines soared 2 3/4 to 36 1/4 after reporting second-quarter earnings were up 12%, and Sun Microsystems added 1 1/4 to 28 5/8 after saying that demand for its computer workstations remains strong.

* Some drug stocks rebounded somewhat from their recent pounding. Johnson & Johnson gained 7/8 to 41 7/8, Lilly rose 1 1/2 to 49 3/8 and Schering-Plough jumped 2 3/8 to 70 1/2.

* Procter & Gamble rose 1 to 50 1/4. The big consumer products company confirmed that it expects to trim a substantial number of jobs.

Also, Gillette jumped 2 1/8 to 51 7/8 amid rumors that the company will introduce a new shaving product next week. A spokeswoman confirmed that a new product will be unveiled but declined to elaborate.

* Anaheim-based Odetics surged 1 7/8 to 10. The firm formed a partnership with Digital Equipment to develop a family of automated tape library products based on Digital technology.

In overseas trading, Tokyo stocks continued their rebound, with the Nikkei average rising 192.55 points to 19,685.07.

In Frankfurt, the DAX index closed down 13.10 points at 1,686.29. In London, the FTSE-100 average lost 6.0 points to 2,894.7.

Credit

Treasury bond prices strengthened and yields flirted with 16-year lows as reports of continuing economic weakness assuaged concerns that the Federal Reserve is ready to raise interest rates.

Declining yields, the seventh in as many sessions, came as participants looked forward to a calendar next month that will see few sales of new Treasury securities and thus reduced the upward pressures on yields in the secondary market.

The yield on the Treasury’s main 30-year bond fell to 6.73% from the previous day’s 6.76%. It was the bond’s lowest yield since it hit 6.72% on April 19 and just above its 16-year low of 6.71% on April 15.

Thursday’s economic reports seemed to leave less room for the Fed to raise interest rates from their current low levels. Higher rates can stifle economic growth.

The federal funds rate, the interest on overnight loans between banks, was unchanged at 3.0% from late Wednesday.

Other Markets

News that French and German finance officials will meet to discuss monetary policy revived speculation that Germany’s central bank will soon be pressured into cutting interest rates, sending the dollar higher against the mark and other major European currencies.

The dollar closed at 1.707 marks in New York, up from late Wednesday’s 1.691 marks.

The Japanese yen strengthened, however, on comments by an influential U.S.-based economist that the dollar should trade below 110 yen as a way to help curb Japan’s global trade surplus.

The yen strengthened on suggestions from Washington-based economist and former Clinton adviser Fred Bergsten that the Japanese trade deficit could be curbed if the dollar stays below 110 yen.

In dollar trading in New York, the dollar closed at 108.70 Japanese yen, down from late Wednesday’s 109.05 yen.

In commodities trading, gold edged higher on the Commodity Exchange in New York. Gold for current delivery rose 60 cents an ounce to $375.10; silver slipped 0.3 cent an ounce to $4.389.

In energy trading on the New York Mercantile Exchange, light, sweet crude oil for August delivery rose 3 cents to $18.89 a barrel.