FINANCIAL MARKETS : Weak Factory Orders Send Dow Soaring 70.90 : Markets: The Dow Jones industrial average soars, buoyed by hopes that the Federal Reserve will not raise interest rates.
The stock market soared Wednesday after an unexpectedly weak reading on factory orders fueled hopes that the Federal Reserve Board will not raise interest rates soon.
The Dow Jones industrial average reached a five-month high, advancing 70.90 points, or 1.88%, to 3,846.73. That was the highest level since March 23, when the closely watched index closed at 3,869.46.
It was also the biggest one-day gain since April 5, when the Dow rose 82.06 points, or 2.2%, to 3,675.41.
But unlike Tuesday’s broad rally, which boosted the Dow 24 points, Wednesday’s market gains were concentrated in blue-chip companies.
In the broader market, advancing issues outnumbered decliners by about 5 to 3 on the Big Board, where volume totaled 310.52 million shares, up from 307.44 million Tuesday.
Stocks began their advance at the opening bell, in concert with bonds and the dollar, after the Commerce Department reported that orders to U.S. factories for big-ticket items declined a surprising 4.2% in July, the biggest drop in 2 1/2 years. Economists had been forecasting a moderate gain of around 0.3%.
Some analysts insisted that the falloff, which was far larger than expected, was a statistical aberration and not a sign that the recovery being enjoyed by American manufacturers was about to be derailed.
They noted that more than half the drop occured because auto plants shut down production for two weeks in July for their annual retooling for the new model year.
But other analysts said the weakness went far beyond autos, with declines widespread in virtually every sector. They said it was strong evidence that the Fed’s rate increases, intended to dampen inflationary pressures, were beginning to have an effect in slowing the economy.
The Dow rose sharply near the end of the session, prompting the New York Stock Exchange to impose restrictions on program trading at 3:32 p.m.
Broad market indexes, however, under-performed the rest of the market. The NYSE’s composite index rose 2.17 to 258.61. The Nasdaq index of mostly smaller companies rose 3.74 to 751.72. The Standard & Poor’s 500 list rose 4.52% to 469.03.
Government bond yields plunged, and investors, emboldened by news of unexpectedly weak factory orders, snapped up this week’s final batch of new Treasury notes.
The Treasury’s bellwether 30-year bond fell to 7.45% from 7.54% on Wednesday. Its price, which moves in the opposite direction, rose 31/32 point, or $9.69 per $1,000 in face value.
Meanwhile, the dollar firmed against the German mark and the Japanese yen, with traders in that market citing the gains in the bond and stock markets.
The dollar closed in New York at 100 yen, up from 97.90 on Tuesday. The dollar also fetched 1.545 marks in late New York dealings, up from 1.532 marks.
Among the market highlights:
* Components of the Dow average rose sharply. International Paper rose 3 1/2 to 74 7/8, amid optimism about rises in paper prices. Alcoa added 2 1/8 to 79 1/2, Minnesota Mining & Manufacturing rose 1 3/8 to 56 3/8, Bethlehem Steel rose 7/8 to 21 1/4, General Motors advanced 2 1/4 to 50 7/8, and Exxon climbed 7/8 to 59 7/8. IBM fell 1/4 to 67 3/8 after it said it was cutting prices on some of its personal computers.
* Amgen fell 2 3/4 to 53 1/4 after Lehman Bros. and Goldman Sachs downgraded the stock.
* Blockbuster Entertainment dropped 1 3/8 to 26 1/2 on news late Tuesday that its board reaffirmed approval of a proposed merger with Viacom Inc. Viacom ended down 1 1/2 to 38 3/4.
* American Barrick Resources slipped 3/8 to 21 5/8 after it signed an agreement with Lac Minerals Ltd. under which Lac will recommend a sweetened Barrick takeover bid to its shareholders. Lac rose 1/4 to 10 1/2.
* Mining stocks were boosted by a rally in the price of gold. Newmont Mining rose 1 to 41 1/4 and Placer Dome gained 7/8 to 21 1/8.
* Morgan Stanley fell 1 5/8 to 67 1/2. Oppenheimer & Co. downgraded its rating on the Wall Street firm’s shares to “under-performer” from “market performer.”
Overseas, stocks were higher, with Mexico’s Bolsa soaring up 42.69 points to close at 2,798.22.
London’s Financial Times 100-share average ended above 3,200 for the first time since March. The index closed up 30.1 points at 3,205.2. Frankfurt’s 30-share DAX average ended up 18.50 at 2,126.37, and Tokyo’s 225-Nikkei average closed at 20,511.60, up 130.82 points.
Stocks were also sharply higher in Paris.
* DURABLE GOODS
Big-ticket factory orders take their steepest dive in 2 1/2 years. D2
New orders in billions of dollars, seasonally adjusted:
July 1994: 144.9
Source: Commerce Department