FINANCIAL MARKETS : Computerized Trading Drives Market Frenzy : Stocks: Volume soars to 483.2 million shares, the third highest ever. The Dow average closes up 41.72.
A frenzy of computerized trading tied to the quarterly expiration of index futures and options sent stock prices sprinting higher on the heaviest volume since the day after the 1987 market crash.
But both bonds and the dollar had a dull day, with activity slowing down as the end of the year approaches.
A flood of computer-driven trades sent the Dow Jones average up 41.72 points, or 1.1%, to close at 3,807.19, although in the broader market, advancing issues led decliners by about 13 to 9 on the New York Stock Exchange.
Volume on the NYSE soared to 483.2 million shares. That was the third-largest volume ever, topped only by the Oct. 19, 1987 market crash and the day after. On Thursday, 337.08 million shares changed hands. Traders attributed the day’s advances largely to the so-called “triple witching” expirations, which often lead to heavy buying.
It spurred an explosive round of computerized purchases at the opening bell that accounted for a record 183.27 million shares changing hands in the first 30 minutes. The volume also set a weekly record, the NYSE said.
Stocks also firmed on optimism that the Federal Reserve will not elect to raise short-term interest rates at its policy-making meeting next Tuesday.
“We’re moving to a point where perceptions about the interest rate outlook are improving,” said Eugene Peroni, technical analyst at Janney Montgomery Scott.
Stock investors do not like higher interest rates because they make fixed-income investments a more attractive alternative, and they can cut into corporate profits.
Stocks also got support from long-term bonds, which gained despite a report that housing starts shot up 6.9% in November. The housing data surprised analysts, who expected rising mortgage rates to put a damper on housing construction.
The data might have encouraged the Fed to tighten credit in an effort to hold back inflation. But investors chose instead to focus on the favorable inflation data put out earlier this week, including modest increases in wholesale and retail prices, and a favorable report from the Philadelphia Federal Reserve released Thursday.
The Treasury’s main 30-year bond yield fell to 7.85% from 7.87% on Thursday. Its price, which rises when yields fall, rose 7/32 point, or $2.19 per $1,000 in face value.
Among the Friday’s highlights:
* General Electric rose 1 1/4 to 50 1/4 in heavy volume after the company raised its quarterly dividend to 41 cents per share from 36 cents, and announced a company repurchase of up to $5 billion of common shares over a period of years.
* Other components of the Dow average also rose, including Alcoa, up 1 7/8 at 83 1/2, and United Technologies, up 1 1/4 at 62 1/4.
* Intel rose 7/8 to 59 1/2. The stock was recovering from earlier declines on problems with its Pentium chip. But Compaq, which said it would continue to sell Pentium products, fell 7/8 to 38 5/8.
* Community Health Systems gained 1 1/4 to 25 5/8 following a buy recommendation from Merrill Lynch.
* Funco Inc. tumbled 5 to 5 3/4 after the company said its third-quarter earnings will be below expectations.
In foreign trading, the Mexican Bolsa closed with another big loss Friday as investors continued to shy away from what has become a very nervous market. The key stock index fell 51.07 points to 2,327.59.
Other overseas markets were higher. Late futures-related buying boosted London’s Financial Times 100-share average 40.2 points to 3,013.6. Germany’s DAX 30-share average ended at 2,070.06, up 17.47 points, while Tokyo’s 225-share Nikkei average ended 42.31 points higher at 19,163.43.
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Turning Up the Volume
Friday was the third-busiest trading day ever for the New York Stock Exchange. Here are the Big Board’s five highest volume sessions, in millions of shares traded:
1. Oct. 20, 1987: 608.1
2. Oct. 19, 1987: 604.3
3. Dec. 16, 1994: 483.2
4. Oct. 21, 1987: 449.3
5. March 18, 1994: 446.4
Source: Associated Press
