Stocks Extend Rally, Led by Tech Shares; Yields Rise

Stocks racked up gains for a second consecutive session Wednesday as investors rushed back into the market to buy the biggest names in technology before the year ends.

The Dow Jones industrial average closed up 38.44 points at 6,346.77, adding to Tuesday’s rally of nearly 40 points. In the broader market, advancing issues beat decliners 1,572 to 927 on active volume of 500 million shares on the New York Stock Exchange.

International Business Machines led the blue chips’ advance, surging 6 7/8 to 158 3/4, contributing more than half the Dow’s rise.

“Stocks are in a year-end window-dressing rally, and IBM is the one all the money managers want in their portfolios,” said Philip Orlando, chief investment officer at Value Line Asset Management. The technology-heavy Nasdaq composite index jumped 19.06 points to finish at 1,285.38.

Analysts said the market was showing some early signs of the so-called Santa Claus rally, the late-December advance stocks enjoy nearly every year.

“Is this the start of a new breakout? Probably not,” said Joseph Battipaglia, chief investment officer at Gruntal & Co. “I wouldn’t read too much into it, because it’s hard to distinguish what’s going on in the last days of a year and it’s an options expirations week. Plus interest rates are still high, and that’s a challenge for stocks.”

The benchmark 30-year Treasury bond yield rose to 6.70% from 6.65% at Tuesday’s close.

“This can’t go on forever,” said Joseph Barthel, chief investment strategist at Fahnestock & Co. “There’s a very good correlation that says when interest rates go up, the market pays the penalty.”

For investors in technology shares, the upturn in interest rates seemed little more than a footnote, however.

Intel jumped 5 3/4 to 135 3/4, and Microsoft climbed 2 3/4 to 82 5/8.

Compaq Computer raced higher, adding 6 1/2 to 78 3/4 after SoundView Financial raised its near-term rating on the shares.

Among financial issues, investment banks and brokerages rose the most. On Tuesday, Goldman Sachs Group said its fourth-quarter earnings surged 69% to $743 million, raising expectations for earnings at other banks and brokerages.

Morgan Stanley Group rose 3/4 to 56 3/4, Dean Witter Discover gained 7/8 to 66 7/8, Merrill Lynch added 2 1/8 to 80 1/8 and Travelers, parent of Smith Barney, advanced 7/8 to 43 1/4. Alex. Brown surged 3 1/8 to 65 1/4, Paine Webber gained 1 7/8 to 29 and Donaldson, Lufkin & Jenrette rose 1 5/8 to 34 3/4.

“A favorable reaction to all the good publicity about Goldman Sachs” is part of the reason brokerage stocks gained, said Raphael Soifer, a Brown Bros. Harriman analyst who follows securities firms. Among other market highlights:

* Drug companies’ stocks also gained, with Pfizer up 5/8 to 81 3/8 and Johnson & Johnson up 1/2 to 49 1/8. Warner-Lambert rose 3/8 to 74 5/8 after the company said it won Food and Drug Administration approval to sell its new cholesterol-cutting drug Lipitor. Merck gained 5/8 to 76 7/8. The company said its fourth-quarter and 1997 earnings will be on the high end of Wall Street estimates.

Genetics Institute soared 22 3/4 to 84 1/2 after American Home Products said it plans to buy the 40% of Genetics it does not already own for $85 a share. American Home Products fell 1/8 to 59 1/8.

* ADT rose 3 1/8 to 23 1/4 after Western Resources Inc. extended an unsolicited $3.5-billion offer to buy the utility and security services company. Analysts called the bid, which values ADT at 22 1/2 per share, a low-ball offer that is likely to be raised.