FINANCIAL MARKETS : Stocks Soar as Interest Rates Slide : Market Overview

* Wall Street roared ahead, powered by another bond rally. The Dow industrials surged 39.31 points to 3,530.20. Financial and transportation issues led stocks higher.

* The yield on the Treasury’s 30-year bond fell to a second consecutive historic low, and rates dropped across the board as inflation worries continued to recede.

* The dollar and oil prices were stable; gold prices eased.

Stocks

Investors, who had appeared nonplussed on Friday as long-term interest rates fell to levels few on Wall Street had seen, came back from the weekend in a buying mood.

Stocks advanced steadily through the day, helped by money managers’ typical end-of-quarter book squaring. Some managers routinely “window-dress” their portfolios at the quarter’s end, getting rid of losers and buying popular stocks that clients would want to see on their quarterly reports.

The Dow’s gain of 1.1% was tracked by other popular indexes. The NASDAQ composite index of smaller stocks shot up 8.03 points, or 1.2%, to 702.84.

On the New York Stock Exchange, winners topped losers 14 to 6 on moderate volume of 242.09 million shares.

Some traders suggested that President Clinton’s decision to strike at Iraq over the weekend helped the stock market by boosting Clinton’s standing in the polls.

But the bond rally provided most of the impetus, analysts said. The slide in long-term interest rates suggests that investors expect the economy to grow slowly at best, without high inflation or the Federal Reserve Board having to tighten credit.

Thus, on Wall Street, “the bond market rally justifies higher prices for stocks,” said Michael Metz, strategist at Oppenheimer & Co.

Among the market’s highlights:

* Financial stocks, particularly brokerages, were stars. Falling interest rates were expected to send more investors into stocks and bonds and boost brokerage profits.

Merrill Lynch surged 2 1/4 to 80 5/8, Schwab zoomed 2 3/8 to 28 1/2, Dean Witter gained 2 1/2 to 38 3/4, Primerica jumped 2 3/4 to 52 5/8 and Bear Stearns added 1 1/8 to 23 3/8.

Bank stocks also gained. Citicorp added 5/8 to 30, First Chicago rose 1 1/2 to 42 7/8, First Interstate rocketed 3 1/4 to 64, NationsBank jumped 1 3/8 to 40 and BancOne was up 1 3/8 to 56 3/4.

* Many industrial issues were strong, perhaps helped by money-manager window dressing. These stocks have been Wall Street favorites this year. Allied-Signal surged 3 1/8 to 69 1/8, GM gained 1 1/4 to 44 3/8, Caterpillar jumped 2 5/8 to 75 1/4 and Chrysler rose 1 3/8 to 46 7/8.

* Transportation issues, which had slumped recently, rebounded. CSX shot up 2 1/2 to 71 1/4, Conrail added 3/4 to 53 5/8 and Roadway Services was up 1 1/4 to 58 1/2.

* The NASDAQ market was boosted by another big rally in tech issues. Newbridge Networks zoomed 2 1/4 to 44 3/4, Sybase jumped 3 3/8 to 75 3/4, Oracle gained 2 1/2 to 48 5/8 and Intel rose 1 3/8 to 56.

* On the downside, telecommunications equipment maker Northern Telecom plunged 8 1/8 to 28 7/8 after its surprise warning of a second-quarter loss. Also, ice cream giant Ben & Jerry’s slid 3 1/2 to 24 after it forecast lower-than-expected quarterly results.

Drug stocks were also weak, perhaps due to quarter’s-end dumping by disheartened money managers. Lilly lost 1 7/8 to 49 3/8, Merck fell 5/8 to 35 7/8 and Johnson & Johnson eased 3/4 to 41 1/4.

Downtrodden hospital stocks, however, attracted buyers. National Medical Enterprises gained 1/2 to 10 3/8 and Humana rose 5/8 to 10 3/4.

Overseas, Tokyo stocks regained strength. The Nikkei average rose 227.19 points to 19,886.76.

In Frankfurt, the DAX average rose 11.96 points to 1,707.20. In London, the FTSE-100 added 9.5 points to close at 2,897.0.

Other Markets

The dollar settled mostly lower in Europe and turned mixed as trading shifted to domestic markets. The dollar was pressured by speculation that economic growth is losing steam.

In New York, the dollar settled at 106.25 Japanese yen, up from 106.15 yen Friday. The dollar also closed at 1.696 German marks, down from 1.704.

Meanwhile, gold for current delivery settled at $375.20 an ounce, off $2 on New York’s Comex. Silver fell 4.1 cents to $4.45.

Crude oil futures were slightly higher in trading on the New York Merc, but appeared to get no boost from renewed Mideast tensions. Light, sweet crude oil for August delivery was 6 cents higher at $18.90 a barrel.

Credit

The yield on the benchmark 30-year Treasury bond dropped from Friday’s 6.7% to 6.67%, the lowest rate recorded since the government began selling 30-year bonds in 1977.

At the end of 1992, the bond’s yield was 7.39%.

Rates on shorter-term bonds also eased Monday, but the big story on Wall Street was investors’ willingness to buy long-term bonds at record low yields.

Traders say the slide in rates continued to suggest that investors see a slowing economy ahead and no significant inflation. Thus bond buyers are willing to accept lower yields.

Monday’s bond rally, the ninth in as many sessions, came as several economists estimated that June employment figures, due out Friday, will indicate weaker economic growth than had been anticipated.

Any new sign of slowing growth would raise the chance that the Federal Reserve will loosen credit again, accelerating the downtrend in yields.