MARKETS: Blue-Chips Rise on Indicators : Blue-Chips Hit Record High on Economic Data

Market Overview

* A fresh batch of good economic news pushed many stocks to all-time highs again on Tuesday, though some sectors of the market were hurt as interest rates continued to rise.

* Treasury bond yields jumped as investors reacted to an unexpected spurt in sales of new houses, the latest sign of economic growth to depress the credit market.

* The dollar hit an 11-week high against the German mark after Germany’s central bank president said he was untroubled by the greenback’s increasing strength.

Stocks

Early in the session, stocks were mostly lower as Treasury bond yields moved up for a second day. But by midafternoon, stocks began to recover, mirroring Monday’s session.

A storm of “buy” orders for IBM shares helped the market. IBM surged 3 1/8 to 50 7/8 after an analyst at Donaldson, Lufkin & Jenrette Securities upgraded the stock and raised earnings estimates.

By the close, the Dow industrials had risen 5.03 points to a record 3,697.64, eclipsing the previous peak of 3,692.61 reached Monday.

Big Board volume came to a heavy 304.78 million shares, up from 256.03 million traded in the previous session.

But in the broader market, declining issues outnumbered advancing ones about 5 to 4 on the New York Stock Exchange, as interest-sensitive utility and financial stocks lost ground.

Still, the rally in stocks went beyond the Dow. The Russell 2,000 index of smaller issues also hit a new high, rising 0.67 point to 260.17.

Helping stocks--and hurting bonds--was a new batch of bullish economic reports. The Commerce Department said its main economic forecasting gauge, the index of leading indicators, rose 0.5% in September, and it predicted moderate growth into 1994. Economists had foreseen a 0.4% gain for September.

the Government also said that sales of new houses shot up 20.8% in September to the highest level in nearly seven years.

So-called cyclical stocks, shares of companies whose success is closely tied to the overall economy, tumbled in the morning but recovered late in the day on the economic reports. In the Dow average, Alcoa rose 1/4 to 68, DuPont gained 1/2 to 48 1/4 and United Technologies rose 1 3/8 to 63 1/8.

“If you have been gloomy about the U.S. economy, this is a slap in the face,” said Peter Canelo, chief investment strategist at NatWest Securities. “There has been a change in economic perceptions.”

Among the market highlights:

* Other industrial stocks gaining included Cummins Engine, up 2 7/8 to 99 7/8; Eaton, up 1 3/4 to 54 3/4; Parker Hannifin, up 1 3/4 to 36; Tenneco, up 1 3/8 to 51 3/4, and Kennametal, up 1 1/2 to 41 1/2.

* Forest products stocks gained as timber prices rocketed on surging housing demand. Louisiana Pacific gained 3 1/8 to 41 1/2, Weyerhaeuser added 1 3/8 to 42 and Champion International rose 1 1/2 to 30 3/4.

* Among retailers, Kmart rose 1/8 to 24 7/8 after it announced the sale of most of its Pace Membership stores to Wal-Mart, which rose 7/8 to 27.

* On the downside, bank stocks tumbled as interest rates rose. Chemical Bank dropped 3/4 to 40 5/8, Wells Fargo lost 1 1/2 to 110 3/4 and Citicorp gave up 1/2 to 36 1/2.

But Great Western Financial rose 1 3/8 to 20 3/8 in dividend-related trading.

* Electric utility stocks also continued on a downward spiral. The Dow utility index sank 3.30 points, or 1.4%, to 237.87.

* Among smaller issues, Geotek leaped 2 3/4 to 13 1/2 after it was announced that a partnership including George Soros would invest $40 million in the company.

Overseas, Germany’s 30-share DAX average closed at a new high of 2,095.58, up 33.46 points, or 1.62%. In Tokyo, the Nikkei average closed at 19,381.24, down 57 points. London’s Financial Times 100-share average dipped 0.3 point to 3,164.1.

Credit

As bond market yields rose, prices tumbled to a six-week low.

But analysts said the recent sharp price decline could be a temporary setback for a market that, until recently, was regularly setting new highs. Several major, fixed-income investors were said to be prepared to buy bonds again.

The Treasury’s main 30-year bond yield ended at 6.06%, the highest level since Sept. 23. It closed Monday at 6.03%. The long bond’s price fell 3/8 point, or $3.75 per $1,000 in face value.

Prices of short-term Treasury securities posted smaller losses, falling between 1/32 point and 3/32 point. Intermediate maturities were lower by as much as 11/32 point, the Telerate Inc. financial information service reported.

The latest news of economic strength added to fears of inflation and rising interest rates, conditions that tend to reduce the value of bonds.

Investors who are worried that the Treasury market may have peaked are selling U.S. bonds and buying foreign securities that offer more room for price appreciation, said Kathleen Camilli, chief economist at Maria Fiorini Ramirez.

The federal funds rate, the interest on overnight loans between banks, was 3%, down from 3.125% on Monday.

Other Markets

The dollar jumped after Germany’s central bank president, Hans Tietmeyer, told reporters he was not concerned about its advance against the mark. He also said Germany had not been selling dollars and buying marks to maintain the exchange rate, as some investors had suspected.

“Once that statement came out, the dollar went straight up,” said John Nelson, director of foreign exchange at Barclays Bank in New York.

Earlier, the dollar got a boost from the positive news about the U.S. economy, but it fell back before Tietmeyer’s comments.

In New York, the dollar closed at 1.695 German marks, up from 1.694. It also finished at 107.80 Japanese yen, down from 108.23.

Currency traders said the dollar has been gaining strength from a growing perception that the gap between rates in the United States and Europe is narrowing.

While long-term U.S. bond rates have been climbing, promising better returns on dollar-denominated investments, European rates are expected to stay low as those countries work their way out of recession.

In commodities trading, gold prices rose in the United States and fell overseas.

On the New York Comex, gold for current delivery closed at $362.70 an ounce, up $1.50 from Monday. On the New York Comex, silver closed at $4.182 an ounce, off 3.3 cents.

The energy markets recovered much ground lost to Monday’s sharp selloff, as traders evened up their positions in advance of an industry report on U.S. oil stocks. Light, sweet crude oil for December delivery fell 31 cents to $17.12 a barrel.