Stocks Stage a Rebound Despite Hints of Inflation

Blue-chip stocks on Monday ended a three-session slump even though interest rates rose in the bond market after new signs of economic strength aggravated inflation worries.

The Dow Jones industrial average was weighed down by a big drop in AT&T; shares, but rebounded from a nearly 50-point morning drop to close at 6,918.92, up 41.18. The blue-chip barometer had lost about 160 points over the previous three sessions amid worries the Federal Reserve Board is planning to contain inflationary pressures--including investor enthusiasm--with higher interest rates.

Broader measures also turned higher despite a weak bond market.

The weak bond market, coupled with AT&T;’s drop of 3 1/8 to 36 3/4, made the stock market’s moderate gains appear all the more impressive, analysts said.

“You had two major negatives today, and the market was still able to basically reverse course,” said Peter Cardillo, director of research at Westfalia Investments.

The bond market was weighed down by fresh indications of strong economic growth that could aggravate lingering inflationary pressures.

The National Assn. of Purchasing Management reported that the nation’s manufacturing economy grew faster than expected in February.

The Commerce Department, meanwhile, reported that consumer spending jumped 0.7%, outpacing a 0.3% gain in incomes. Analysts had predicted spending growth of just 0.5%.

As bond prices fell, the yield on the 30-year Treasury rose as high as 6.86%, up from late Friday’s 6.80%. Later, the long-bond yield edged back to 6.83%, still its highest finish since late January.

Inflation can hurt bonds by making their fixed payoff less attractive.

Higher interest rates can hurt stocks by raising corporate borrowing costs and slowing consumer spending, cutting into company profits.

Advancing issues outnumbered decliners by a slim margin on the New York Stock Exchange in moderate trading.

The Standard & Poor’s 500-stock list rose 4.49 points to 795.31, the NYSE’s composite index rose 1.83 points to 417.34, and the technology-heavy Nasdaq composite index rose 2.18 points to 1,311.18.

Analysts called the rebound encouraging but stopped short of predicting an end to the market’s recent weakness.

Analysts noted that Fed Chairman Alan Greenspan’s scheduled appearance before the House Banking Committee on Wednesday and a key monthly employment report due on Friday would likely preclude any meaningful rise in stocks in the meantime.

Among Monday’s highlights:

* Computer industry bellwethers led the tech rebound. Intel gained 4 to 145 7/8; Dell Computer rose 1 1/2 to 72 5/8, Microsoft advanced 2 to 99 1/2 and IBM improved 1 1/2 to 145 1/4.

* DuPont soared 4 1/8 to 111 3/8 as the Dow’s biggest gainer following news that its board approved a stock split. The Dow’s other big advancers were: J.P. Morgan, up 3 1/8 to 108 1/8; Merck, up 1 7/8 to 94; and General Motors, which rose 1 3/8 to 59 1/4 despite reporting a 7.5% drop in February’s U.S. sales.

* Conrail surged 7 1/8 to 111 5/8 as expectation mounted that a four-month takeover battle for control between CSX and Norfolk Southern was nearing an end. Conrail’s board met Monday to discuss the company’s options. CSX jumped 2 7/8 to 49 and Norfolk Southern rose 2 3/4 to 93 7/8.

* Dow Jones jumped 1 5/8 to 41 7/8 on word that a member of the controlling family wants a new chief executive, and on a report that General Electric might want to buy a stake in the company.

* Israel’s VocalTec surged 2 1/4 to 8 3/4 after it said it signed a memorandum of understanding with Motorola to license and distribute software for transmitting voice communications over the Internet. Motorola lost 1/4 to 55 3/4.

* BHC Financial soared 11 7/8 to 31 7/8 after the company agreed to be acquired by Fiserv, which climbed 3 7/8 to 36 5/8.

* Cor Therapeutics slid 2 15/16 to 9 3/8 after a Food and Drug Administration advisory panel recommended against approving intrifiban, a rattlesnake venom derivative the company hoped to market for treating some heart conditions.

Overseas, Tokyo’s Nikkei stock average fell 0.7%, Frankfurt’s DAX index rose 0.1%, and London’s FTSE-100 ended slightly lower.