Late Rally Boosts Dow as Bond Selloff Ends : Market Overview

The U.S. stock market staged a surprise turnaround Wednesday in heavy trading, but key foreign markets were weak.

* Interest rates closed mostly lower as buyers returned to the bond market after Tuesday’s selloff. Gold edged up.

Stocks

The market’s weakness Tuesday spilled into early trading Wednesday, with virtually every sector losing ground. Then, as bond yields stabilized, buyers also jumped back into stocks.

The Dow industrials, off 18.45 points Tuesday, rose 17.89 points Wednesday to 3,633.65, with most of the gain in the last hour of trading.

Though losers slightly outnumbered winners on the New York Stock Exchange, some analysts said they were encouraged to see the market quickly revive, and on heavy volume of 298 million shares.

“It was a big reversal,” said Mark Donahoe, analyst at Piper, Jaffray Inc. in Minneapolis.

Small stocks led the market. The NASDAQ composite index jumped 6.91 points to 739.55, recovering most of Tuesday’s 7.68-point loss.

Traders said the market’s focus on interest rates could continue for several weeks, until investors begin to see third-quarter corporate earnings reports.

But some also worried about deterioration of key overseas markets that had rallied in August. In London on Wednesday, the FTSE-100 index tumbled 38.6 points to 2,989.4. In Frankfurt, the DAX index slid 20.18 points to 1,860.39, its lowest closing since Aug. 3.

In Paris, the CAC-40 index dropped 55.63 points to 2,078.51.

Analysts blamed the declines on fears that European interest rates aren’t falling fast enough.

Tokyo’s market was closed for a holiday, but by midday today the Nikkei index was off 333.33 points to 20,614.46 in a flurry of arbitrage-related selling.

Among U.S. market highlights:

* Industrial stocks powering the Dow included Kodak, up 7/8 to 61 7/8; GM, up 1 1/2 to 47 1/4; 3M Co., up 1 1/8 to 108 1/2, and United Technologies, up 1 to 57 7/8.

* Entertainment issues continued to attract attention. Paramount Communications jumped 1 3/8 to 64 1/2 as traders bet that a bidding war would yet erupt for the firm, which agreed Sunday to merge with Viacom Inc.

Sources said that cable TV titan John Malone and QVC Network Chairman Barry Diller continue to weigh the merits of a bid, which they nearly launched earlier in the summer. If a rival bid materializes, however, many analysts expect that Viacom ultimately will prevail by sweetening its offer.

Meanwhile, Viacom B shares rose 1/4 to 55 5/8, while the Class A shares were unchanged at 61 1/2.

* Disney fell 1 1/2 to 39 1/8 in heavy trading. Brokerage Goldman, Sachs cut its earnings estimate for the current year to $1.71 a share from $1.78 a share, citing, in part, expectations of falling theme park attendance. Analysts said the recent killings of several tourists in Florida could hurt attendance at Walt Disney World in Orlando.

* The NASDAQ market’s advance was led by computer chip giant Intel, up 1 5/8 to 64 7/8 after it was picked as Merrill Lynch’s “focus” stock of the week.

Other Markets

The disappointing August report of rising consumer prices, which riled bonds Tuesday, caused more selling early Wednesday.

The 30-year Treasury bond yield, which jumped from 5.88% Monday to 5.97% on Tuesday, rose to 6.07% early Wednesday, the highest since Sept. 1.

But buyers soon returned, pushing yields back across the board. The T-bond yield finished at 5.97%, unchanged. Most shorter-term yields were slightly lower.

Traders said Tuesday’s inflation report, though higher than expected, wasn’t enough to break the back of the bond bull market. But they warned that speculators could continue to foster volatile trading.

Elsewhere, the dollar was mixed in technically oriented trading. It closed in New York at 1.595 German marks, down from 1.609 on Tuesday, but rose to 105.98 Japanese yen from 105.83.

Gold inched higher for a second day. The near-term futures contract on New York’s Comex rose $2.70 to $347.50 an ounce. Silver added 0.4 cent to $3.98 an ounce.

On the New York Merc, light, sweet crude oil for October slipped 10 cents to $16.86 a barrel.

Market Roundup, D8