Dow Again Hits Record, Ignoring Bonds

From Times Staff and Wire Reports

The stock market advanced broadly but modestly Monday, with the Dow industrial average leading the way and reaching another record high.

Stocks’ gains struck an optimistic note ahead of today’s meeting of the Federal Reserve Board. That optimism contrasted with another sell-off in the bond market, as some nervous traders seemed to lose hope that the Fed will cut short-term interest rates.

On Wall Street, the Dow rose 33.23 points to a record 5,304.98, adding to Friday’s gain of 54.92 points and closing above 5,300 for the first time.


In the broad market, winners topped losers 1,325 to 970 on the New York Stock Exchange in moderate trading. Most major market indexes closed higher, with the NYSE composite, Standard & Poor’s 500 and Wilshire 5,000 joining the Dow at record levels.

The S&P; index added 2.60 points to a new high of 624.22.

Industrial stocks such as chemical, metal and machinery issues led the way, which some analysts said was a sign that investors were betting on another Fed rate cut.

In theory, at least, lower interest rates could help bolster the weak economy and guarantee that the current expansion would be prolonged--which could be good news for companies whose fortunes are tied closely to economic swings.

“People are anticipating an ease” in rates by the Fed, said David Shulman, investment strategist at Salomon Bros. in New York.

The Federal Open Market Committee, the central bank’s policy-setting forum, will meet today and Wednesday. Many economists expect the Fed to cut its benchmark short-term rate by a quarter of a percentage point, to 5.25%.

Yet as optimistic as stock investors appeared to be Monday, the bond market was gloomy. The yield on the Treasury’s 30-year bond rose to 6.09% from 6.04% Friday, and shorter-term yields also were higher.

A Fed rate cut is far from certain, some bond players said.

“Even though the chance for a Fed cut is above 50%, it’s not enough of a one-way bet to get me interested in buying Treasuries right now,” said Glen Wisher, who helps manage about $3.5 billion at Julius Baer Investment Management in London.

Some analysts said that bond yields already seem to factor in new rate reductions by the Fed. Also, a heavy calendar of economic statistics this week could pour cold water on the idea that the economy is weak enough to justify lower interest rates.

In addition, the Treasury on Wednesday will announce details about its quarterly financing needs. The Treasury is expected to sell $44 billion worth of three-, 10- and 30-year bonds next week.

Finally, the surge in gold prices in recent weeks worries some Fed-watchers. The Fed is known to pay close attention to the price of gold, which historically is an inflation barometer. If the Fed believes higher inflation is on the horizon it would be unlikely to cut rates.

Gold futures, which hit their highest prices in 5 1/2-years in trading Friday, were calm Monday. The February gold futures contract on the Comex closed unchanged at $405.80 an ounce.

Whether or not the Fed cuts, some analysts says fourth-quarter corporate earnings should help to justify stock prices at current levels.

“Earnings actually support recent surges in [share] prices,” said Peter Coolidge, trader at Brean Murray Foster Securities. “There weren’t any major disasters [among companies reporting in recent days], and there are some good surprises.”

Among Monday’s highlights:

* Industrial issues leading the market higher included Alcoa, up 1 1/8 to 54; DuPont, up 1 to 75 1/8; GM, up 1 1/8 to 52 1/4; Caterpillar, up 1 1/2 to 63 3/4; Illinois Tool Works, up 3/4 to 58; and Potash, up 3 to 68 5/8.

* MCI Communications surged 1 3/4 to 29 1/4 after announcing an alliance with Microsoft to jointly market a range of online services.

Microsoft eased 1/8 to 90 3/8. MCI arch-rival AT&T; gained 7/8 to 65 5/8.

* Tech stocks were mixed. IBM gained 1 3/4 to 106 1/2, Computer Sciences jumped 2 1/8 to 76 5/8 and Cadence was up 1 to 39 3/4, but Texas Instruments lost 1 1/4 to 46 3/4 and Uunet sank 3 to 43 3/4.

Also, computer-chip maker Micron Technology fell 7/8 to 33 5/8, reacting to news that the company’s chief executive had been rehired just eight days after his resignation.

* In the takeover arena, Biocraft Laboratories jumped 5 1/2 to 19 1/8 after the generic drug maker agreed to be acquired by Israeli drug firm Teva Pharmaceutical in a $289-million stock swap. Teva’s shares fell 1 1/8 to 44 1/8 on Nasdaq.

Also, Sterling Chemicals surged 3 1/4 to 12 1/2 after the styrene producer said it was exploring selling itself or breaking up.

Mattel and Hasbro, embroiled in a takeover fight, both advanced after Mattel said it hired an investment banking firm for advice. Mattel jumped 1 1/8 to 31 3/4; Hasbro rose 3/4 to 43 3/4.

* Struggling retailer Limited was unchanged at 16 1/2 despite saying it will buy back up to 24% of its shares.

* Echostar Communications shot up 7 to 32 1/2. The company on Friday won a federal auction for a direct broadcast TV satellite license covering the western half of the United States.

In foreign trading, Mexico’s Bolsa index followed the Dow higher, adding 8.91 points to a record 3,087.99.

Stocks also advanced in Argentina, Brazil, Germany, France, Australia and Canada, among other markets.

But Taiwan’s key index plunged 4.9% Monday on fears that China may launch a military attack this year. Today, however, the index rebounded 2.4% after Chinese Prime Minister Li Peng, in a speech, reasserted China’s sovereignty claim over Taiwan but did not give a timetable for reunification.

Market Roundup, D8