A drug industry megamerger helped the stock market rally Monday despite a jump in interest rates--the second consecutive session in which stocks have ignored the bond market's troubles.
Meanwhile, the stumbling dollar continued to lose ground against the German mark, but stabilized against the Japanese yen.
On Wall Street, the Dow Jones industrials gained 19.33 points to 3,701.02, as health-care issues jumped following news that drug maker Syntex agreed to a $5.3 billion takeover by Roche Holdings Ltd.
The Dow was lifted in part by drug giant Merck, which gained 1 1/2 to 31 1/8, and by Eastman Kodak, which soared 3 1/4 to 44 3/4 on rumors that it plans to sell all or parts of its Sterling drug unit. A Kodak announcement is due today.
But analysts also noted that the stock market's rally Monday was broad in scope, and included industrial and technology issues that would benefit from a continuing healthy economy. Many of those stocks had been clipped in recent weeks as investors feared that higher interest rates would slow the economy dramatically.
"It's just a natural rebound . . . as people realize that the world is not ending," said Douglas Myers, trader at brokerage Interstate/Johnson Lane.
Indeed, another surge in rates failed to rattle stocks on Monday, even as the yield on three-month Treasury bills topped 4% for the first time in more than two years. Long- term yields also rose, for a third consecutive session.
Interest rates were pushed higher after the National Assn. of Purchasing Management said its April index of manufacturing activity rose to 57.7% from the previous month's 56.7%, a sign that the economy's expansion remains on track.
Investors have continually demanded higher yields on long-term bonds over the past three months, fearing that the economy's strength will lead to rising inflation down the road. Also, the Federal Reserve Board's decision to begin boosting short-term interest rates in early February, as a way of moderating economic growth, has put added upward pressure on rates across the board.
On Monday, the Treasury auctioned new three-month bills at an average yield of 4.10%, up sharply from 3.94% last week and the highest since March 30, 1992. At the start of the year the T-bill yield was 3.06%.
The T-bill rate's jump Monday suggested that many investors are betting that the Fed will move soon to boost its benchmark short-term interest rate to 4%. The Fed has already raised that rate from 3% at year end to 3.75% currently.
Longer-term yields also rose Monday, but fell back from midday highs. The yield on 30-year Treasury bonds closed at 7.33%, up from 7.30% Friday but down from about 7.37% at midday.
Analysts said bond investors were spooked by a segment of the purchasing managers' survey that showed nearly half the businesses reporting price increases on materials bought in April. As the T-bond's yield approached 7.40% on Monday, however, bond dealers said some traders bought bonds to close out "short" positions, which are trades in which borrowed bonds are sold in anticipation of falling prices.
Elsewhere, the dollar halted its plunge against the Japanese yen, but it weakened again versus the German mark.
The Fed had intervened in currency markets Friday to support the dollar, for the first time since last August. Many traders believe the Clinton Administration has decided it doesn't want the dollar to fall below 100 Japanese yen, despite the weak dollar's use as a lever against Japan in trade issues.
Traders chose not to challenge the Fed on the yen Monday, and the dollar closed at 101.70 yen in New York, up from 101.55 Friday.
But the buck continued to lose ground versus the mark, closing at 1.650 marks in New York, down from 1.654 on Friday. "There is a growing perception that Germany's recession has bottomed out and therefore there is more interest in holding marks," said one currency trader.
In the stock market, investors seemed oblivious to the bond and dollar markets' fears. Rising stocks outnumbered losers by 12 to 9 on the New York Stock Exchange and smaller stocks outperformed blue chips. The Nasdaq composite index of mostly smaller issues jumped 6.84 points to 740.68.
Some analysts said stock investors appeared to be focusing solely on prospects for higher corporate earnings as the economy grows.
Among the market highlights:
* Drug and other health-care issues posting big gains on news of the Syntex deal included Lilly, up 2 3/8 to 51 5/8; Schering-Plough, up 3 5/8 to 64; Amgen, up 1 1/4 to 41 3/4; PacifiCare A, up 3 1/2 to 54 1/4, and Ramsay HMO, up 3 3/4 to 58 1/2.
* Industrial issues attracting buyers included Alcoa, up 3 to 70 1/2; DuPont, up 1 3/8 to 58 1/2; Cooper Tire, up 3/4 to 26 7/8; Emerson Electric, up 2 3/4 to 61, and Ford, up 2 1/2 to 60 7/8.
* In the tech sector, computer networkers led a rally. Wellfleet Communications gained 3 3/4 to 77 5/8, Cabletron Systems rose 3 3/4 to 106 3/4 and Newbridge Networks jumped 4 to 54 3/8.
* On the downside, casino operator Caesars World tumbled 4 7/8 to 43 3/4 after projecting lower quarterly earnings.
Overseas, Frankfurt's DAX index rose 22.67 points to 2,268.65, while Tokyo's Nikkei index slid 155.04 points to 19,570.21. The London market was closed for a holiday.
In Mexico City, the Bolsa index fell 63.37 points to 2,230.73 as investors continued to sell on news of poor corporate earnings reports.
Market Roundup, D8