Dow Rockets 135 on Mild Inflation News

The bulls finally reasserted themselves on Tuesday, driving beaten-down blue-chip stocks up sharply as worries about inflation and interest rates eased.

The Dow Jones industrial average leaped 135.26 points to 6,587.16, with much of the rise coming in the closing minutes.

The Dow’s point gain was its second-biggest ever, although traders noted that point changes have become less significant as the Dow has climbed in recent years.

Still, in percentage terms, Tuesday’s 2.1% Dow gain was the biggest in three years and was welcome news for investors who had suffered through a drop of nearly 10% in the Dow from mid-March to Friday.

“I think it’s ready to turn,” said Roy Blumberg, analyst at Josephthal, Lyon & Ross in New York, noting that the Dow’s two-day gain of 195 points more than recouped last Friday’s plunge of 148 points.

Other analysts were more guarded in assessing the market’s potential, after more than five weeks of sustained decline fueled primarily by rising interest rates.

Ralph Acampora, market analyst at Prudential Securities in New York, noted that many major technology stocks continued to fall Tuesday even as the Dow soared. “Will this be sustainable? Not without those other [stocks],” Acampora said.

Winners topped losers by a strong 19 to 8 on the New York Stock Exchange on heavy trading volume of 510 million shares. But on Nasdaq winners had just a slight edge over losers, and the Nasdaq composite index fell 3.53 points to 1,212.88.

The rally was sparked by the government’s report that consumer prices were tame in March, despite the strong economy.

That encouraged some investors because it suggests that the Federal Reserve Board, which tightened credit on March 25 for the first time in two years, may not have to raise interest rates much more if the economy slows and inflation stays under control.

Reacting to the inflation news, bond yields fell across the board from Monday’s nine-month highs. The bellwether 30-year Treasury bond yield dove to 7.09% from 7.17% Monday.

That helped bring investors back into stocks as well. Some robust first-quarter corporate earnings reports also buoyed stocks.

But analysts said the market was so overdue for a snap-back rally after its deep decline of recent weeks that the bigger surprise Tuesday would have been if shares had simply languished.

“We got tremendously oversold in both stocks and bonds,” said Charles Pradilla, market strategist at Cowen & Co. in New York.

William Raftery, analyst at Smith Barney in New York, said that from the viewpoint of market “technicians”--analysts who watch chart patterns in stocks to predict market moves--Tuesday’s rally was “a little too late to be a ‘springboard’ rally” to new highs.

“You have to assume this market is still on weak knees,” he said.

But Rao Chalasani, analyst at Everen Securities in Chicago, noted that the market’s decline in recent months has been much deeper outside the blue-chip stocks. For that reason, he said, “My feeling is we have probably seen the worst” and that stocks could stabilize soon if investors get a sense that interest rates won’t go much higher and that the economy will continue to grow into 1998.

Among Tuesday’s highlights:

* Among blue-chip issues soaring on first-quarter earnings news, Caterpillar rocketed 3 5/8 to 83, Johnson & Johnson soared 2 to 55, Mobil jumped 2 3/8 to 123 7/8, Honeywell gained 1 3/8 to 70 and Textron surged 2 3/8 to 103 5/8.

* In the banking sector, Citicorp and Chase Manhattan both reported healthy earnings. Chase gained 2 1/8 to 92 5/8, Citicorp, however, edged up just 3/8 to 106 7/8.

* Retail stocks were strong, with Sears up 2 1/4 to 48 1/8, Dayton Hudson up 1 3/8 to 42 3/8 and Ann Taylor up 1 3/8 to 24 1/8.

* On the downside, many tech issues were weak, depressing the Nasdaq market. Intel lost 2 3/4 to 131 after trading as low as 128 1/4. Although the computer chip giant beat analyst estimates with its earnings report late Monday, investors chose to focus on its warning that its revenue growth will probably slow this quarter.

Other big-name tech losers included Cisco Systems, down 3 1/8 to 50 1/8; Microsoft, off 1/4 to 97 1/8; and Ascend Communications, down 3 1/4 to 42 1/4.

Overseas, Tokyo’s Nikkei-225 index rose 1.4%, Frankfurt’s DAX index rose 1.5%, and London’s FTSE 100 rose 0.8%.