No Surprises in Fed Testimony; Dow Rises 24.2

Market Overview

* Stocks were mostly higher Tuesday as investors focused on Federal Reserve Chairman Alan Greenspan’s upbeat assessment of the economy, rather than on prospects for higher interest rates.

* Bond yields edged lower for the first time in six trading days, apparently on relief that Greenspan said little new about the Fed’s rate plans.

Stocks

After the three-day weekend, buyers were out in force in certain stock sectors all day, including food issues, banks and utilities. But the broad market’s gains were fairly limited.

The Dow industrials added 24.20 points to 3,911.66, recovering much of last Friday’s 35-point drop.

However, the Nasdaq composite index of mostly smaller stocks, down just 1.39 points last Friday, was likewise slow to rally Tuesday. It gained 2.30 points to 791.15.

Trading volume was moderate at 271 million shares on the New York Stock Exchange.

Wall Street responded well to Greenspan’s semiannual congressional testimony on monetary policy. Greenspan lauded the economy’s strength, saying the outlook is the best it’s been in decades.

But he also warned that the price of continued economic expansion will be higher short-term interest rates, as the Fed works to keep inflation at bay.

Some investors may just have been happy that Greenspan wasn’t more specific about the Fed’s timetable for more rate hikes, analysts said. “The market was relieved he did not rock the boat any further,” said James Melcher, president of Balestra Capital.

The Fed tightened credit Feb. 4 for the first time in five years, leading to a 96-point drop in the Dow that day. The market has been struggling since.

Among Tuesday’s highlights:

* Bargain hunters moved in on utility and financial stocks that have been slammed anew since the Fed tightened credit. Rising rates generally squeeze financial companies’ profits and lessen the attraction of utilities’ dividends.

The Dow utility index jumped 3.23 points or 1.6% to 211.77, after losing 3.56 points last Friday. Gainers included American Electric Power, up 3/4 to 33 3/4; Consolidated Edison, up 3/4 to 29 5/8; and Southern Co., up 1/4 to 41 1/8.

Among bank stocks, Citicorp added 1 to 41 1/8, First Chicago zoomed 1 3/8 to 48 and Wells Fargo jumped 3 1/2 to 138 1/8.

* Industrial issues were helped by Greenspan’s optimism on the economy, and on a strong earnings report from Deere, which soared 5 1/4 to 82 1/2. Other winners included Caterpillar, up 2 1/2 to 110 5/8; Emerson Electric, up 2 1/2 to 65; Varity, up 1 3/8 to 45 3/8; and Fruehauf Trailer, up 3/4 to 6 5/8.

* Tech stocks continued their recent rally. Intel shot up 2 to 68 3/4, Compaq leaped 2 3/8 to 95 7/8, Motorola soared 3 1/4 to 107 and Cheyenne Software jumped 1 3/8 to 40 3/8.

* Investors also returned to food stocks and some other consumer issues, many of which have been laggards over the past two years. Hershey Foods leaped 2 5/8 to 53 1/2, Campbell Soup gained 1 1/8 to 41 1/8, Quaker Oats added 1 1/2 to 64 1/2 and Procter & Gamble surged 1 5/8 to 59.

* Among Southland issues, Benton Oil & Gas surged 1 1/16 to 5 3/4. The company said it acquired an additional 30% stake in Benton-Vinccler, its Venezuelan venture. Kidder Peabody upgraded its rating on the stock.

Overseas, markets were mostly lower. In Tokyo, the Nikkei average closed at 19,342.63, down 51.31 points. In Frankfurt, the DAX index eased 11.91 points to 2,107.62, and London’s FTSE-100 index fell 16.6 points to 3,333.7.

In Mexico City, the Bolsa index dove 49.09 points to 2,635.05, as profit takers continued to hammer the market.

Credit

Bond yields didn’t fall much on Tuesday, but any decline was welcome after last week’s carnage.

The 30-year Treasury bond yield, which rocketed from 6.40% to 6.62% last week--highest since July--slipped to 6.60%.

Investors have been dumping bonds since the Fed tightened credit on Feb. 4, on the belief that the Fed was reacting to inflation signals that the market didn’t see. Inflation is the No. 1 enemy of fixed-income investments.

On Tuesday, Greenspan reiterated in his congressional testimony that the Fed’s decision was meant to send a signal that it was serious about fighting inflation by keeping the economy growing moderately.

“We viewed our move as low-cost insurance,” Greenspan said. He also tried to soothe the bond market by repeating his belief that 1994 inflation won’t top 3%.

Some analysts said the market rallied simply because Greenspan didn’t surprise anyone. “Some kind of minor bounce in the market was long overdue given the horrible price action we’d had in the past few days,” said Anthony Karydakis, economist at First Chicago Capital Markets.

Also helping sentiment was news that consumer confidence in the economy fell in February after a three-month string of increases.

A slide in confidence could translate into slower economic growth.

Other Markets

The dollar opened higher in New York from its close Friday, but the gain reflected the dollar’s rise on world markets Monday, when U.S. financial markets were closed for the Presidents’ Day holiday.

In New York, the dollar finished at 105.60 Japanese yen and 1.725 German marks, up from 104.55 yen and 1.714 marks Friday.

Gold fell on the New York Comex. Near-term futures closed at $378.00 an ounce, off $2.30 from Friday. Silver finished at $5.21, up 3.8 cents.

Heating oil led energy futures higher on the New York Merc on forecasts for colder weather this week in the Northeast. Light sweet crude oil for March delivery rose 3 cents to $14.24 a barrel.

Elsewhere, frozen pork bellies for February delivery soared 2 cents, the permitted daily limit, to 58.50 cents a pound.

Pork bellies, used to make bacon, surged in reaction to the Agriculture Department’s annual cold-storage report, released late Friday. In the report, the agency lowered its previous estimate of Dec. 31 stocks by about 4.5 million pounds to slightly less than 53.2 million pounds.

The nearly 8% reduction caught traders and analysts by surprise.