FINANCIAL MARKETS : Economic Reports Put Dow Above 3,800; Bonds Rally
Fresh signs that inflation was under control in May inspired a bond rally that helped hoist the Dow Jones industrial average to its highest close since late March.
The broad advance on Wall Street was led by hard-charging cyclical stocks. The Dow climbed 31.71 points to 3,814.83 as investors snapped up shares of businesses particularly sensitive to changes in the economic weather.
It was the first time the blue chip indicator finished above 3,800 since March 24, when it closed at 3,821.09. Since then, worries about rising interest rates and inflation have tempered investors’ buying fever.
In the broader market, gainers led losers by about 11 to 7 on the New York Stock Exchange, where the volume totaled 288.55 million shares.
A range of stock measures moved ahead. The NYSE composite index rose 1.34 to 255.10, and Standard & Poor’s 500-stock index added 3.27 to 462.37.
Smaller companies also posted solid gains, with the Nasdaq composite index rising 4.28 to 735.98.
Equity investors took their cue from the bond market, where traders bought enthusiastically at the outset of the session in response to government economic reports.
The buying pace moderated as the session progressed, but prices of Treasury notes and bonds still sported decent increases by the end of the day. The yield on the key 30-year issue fell to 7.30% from 7.35% on Monday, driving its price up about half a point.
In the morning, bond yields fell after reports showed that May retail sales dropped and the consumer price index for May edged up modestly. Gains were eaten away a bit later by a report of higher retail sales for the first half of June.
Bond investors tend to be scared by strong economic growth, which carries the threat of inflation. Inflation erodes the value of fixed-income securities such as Treasuries.
The much-anticipated release of May consumer price index figures affected the market less than it might have, because the data came in as expected, traders said.
The 0.2% drop in retail sales marked the second straight monthly decline. The Commerce Department data provided further evidence that the Federal Reserve Board interest rate increases this year are helping slow the economy, analysts said.
The Labor Department’s May inflation report said consumer prices edged up 0.2% as falling gasoline prices and the biggest one-month drop in airline fares in 25 years partly offset rising food costs.
Apart from the falling bond rates, stocks also benefited from renewed interest in companies particularly sensitive to the economic climate. Keeping in mind that an expanding economy will generate business, investors focused on companies most likely to reap the rewards, such as construction machinery makers and car manufacturers.
Among Tuesday’s market highlights:
* The Big Three auto makers were all active on the Big Board, with General Motors moving up 1 1/2 to 53 5/8, Chrysler up 1 3/8 to 49 7/8 and Ford Motor up 2 1/4 to 61 1/8.
* Cyclicals also rose, including Caterpillar, up 3 3/8 to 109 3/8; Ingersoll-Rand, up 1 3/4 to 38 3/4, and Hercules, up 2 3/4 to 112 3/4.
* Exxon fell 5/8 to 59 in active trading. The stock tumbled 2 1/4 on Monday after a federal jury ruled that the oil company acted recklessly in the events leading up to the 1989 Exxon Valdez oil spill in Alaska.
* Sprint slipped 2 3/4 to 37 1/8 after telecommunications monopolies in Germany and France unveiled plans to buy 20% of the third-largest U.S. long-distance carrier.
* New World Communications rose 1 3/4 to 13 3/8 on news that it named former NBC Entertainment chief Brandon Tartikoff to head its production company.
Transport stocks also rallied. Dean Witter upgraded Consolidated Freightways to “buy” from “accumulate,” and the stock gained 1 3/4 to 25 5/8. Conrail gained 2 5/8 to 57 1/2 and Norfolk Southern added 1 7/8 to 67 1/8.
* Travelers jumped 2 to 35 1/2 on word that the company will merge with Metropolitan Life Insurance in a deal that would create one of the nation’s largest health insurance networks. Met Life, as a mutual company, is owned by its policyholders and is not publicly traded.
Mixed activity overseas had little direct effect on domestic dealings. Tokyo stocks ended lower, with the 225-share Nikkei index falling 198.84 points to 21,353.97. In Europe, the London Financial Times 100-share average surged 23.3 points to 3,039.6, and the Frankfurt 30-share DAX average ended down 31.08 points at 2,074.70.
The Mexico City Bolsa index rose 9.66 points to 2300.78.
In currency trading, the dollar weakened slightly against the Japanese yen as market participants, uncertain about the course of U.S. trade talks with Japan, continued to bid the currency lower. The dollar fetched 102.77 Japanese yen in New York, down from 102.85 yen on Monday. Against the German mark, the dollar fell to 1.644 marks, down from 1.646.
Market Roundup, D4
