Dow Ekes Out 1.11 Gain as Rates Inch Up

With IBM rising on the strength of an analyst’s recommendation, the Dow Jones industrials squeaked into positive territory Wednesday, ending a quiet session of low-volume activity.

The Dow average ended up 1.11 points at 5,712.38. Advancing issues narrowly led decliners by 11 to 9 on the New York Stock Exchange.

Volume was low, with 296.39 million shares changing hands on the Big Board. That was slightly below Tuesday’s volume of 306.36 million.

Broad indexes were narrowly mixed. The NYSE composite fell 0.36 point to 356.79, and the Standard & Poor’s 500-stock index fell 1.59 points to 664.81.

But the Nasdaq composite index rose 4.86 points to 1,153.88, and the American Stock Exchange’s market value index rose 1.34 points to 563.39.

The Dow had gained more than 10 points in the morning exclusively on the strength of IBM, which closed 3 1/4 higher at 115.

Salomon Bros. upgraded the computer maker’s stock, noting that the quarter ended June 30 saw its “best revenue acceleration in the past five quarters” and that the outlook for the second half of 1996 and for 1997 “is very positive.”

But stock prices eased in early afternoon trading as investors worried about the government’s latest borrowing binge, the sale of $12.5 billion in five-year notes by the Treasury.

The yield on the five-year note came in at 6.57%, the lowest since May. But bond traders said Wall Street firms that bought the notes might have trouble reselling them, because so many traders and investors remain on vacation.

The 30-year Treasury bond yield, a benchmark for long-term borrowing costs, rose to 6.98% from 6.97% on Tuesday. The nervousness in the bond market spilled over into stocks.

“Our audience is so limited that any move is going to be exacerbated,” said Bill Allyn, director of listed equity trading at Jefferies & Co. in Short Hills, N.J.

Allyn also blamed persistent worries, which began last week, that the Federal Reserve Board may raise interest rates soon. “The Fed, as you know, has been making some rumblings that it is not as serene as we once thought it was,” Allyn said.

Stock investors would not welcome higher rates, which raise corporate borrowing costs, reduce business investment, curb consumer spending and cut into corporate profits. Even the expectation of higher rates can send stock prices lower.

Losses in some Dow components nearly overwhelmed the big gain in IBM shares. Interest-rate-sensitive banking giant J.P. Morgan fell 3/4 to 89 1/8.

Dow component Philip Morris ended 1/2 lower at 91 3/8 after giving up earlier gains, even after the cigarette maker said it would raise its dividend 20%. Philip Morris stock rose Monday and Tuesday after an Indianapolis jury ruled late last week in favor of the tobacco industry in a smoking liability case.

Among Wednesday’s highlights:

* PepsiCo led the most-active list on the NYSE for the second day in a row; it lost 1 point, closing at 30. The soft drink bottler continues to face setbacks in its battle with Coca-Cola for market share, particularly in South America.

* H&R; Block was another big loser on the Big Board, dropping 2 to 25 7/8. The company postponed a shareholder vote on completing the spinoff of CompuServe.

* First Mississippi rose 3 to 27 after Mississippi Chemical, which gained 1 3/8 to 22 5/8, agreed to acquire First Mississippi’s fertilizer operations in a deal valued at $297 million.

* Garden Botanika slumped 4 3/4 to 8 1/2. It reported a loss for the latest quarter. The company also said its August sales were disappointing and could bode ill for its third-quarter results.

Overseas stock markets ended mixed, with the Nikkei index in Tokyo easing 0.96%, but the FTSE-100 in London reached a new high, and the DAX index in Frankfurt ended fractionally higher.

Market Roundup, D6