Dow, Bonds Rally Amid Rates Optimism

Stocks were mixed Tuesday, with blue-chip shares rising as new data reinforced hopes that the Federal Reserve Board won’t see a need to raise interest rates this week or in the near future.

The Dow Jones industrial average briefly dipped into negative territory in the afternoon after giving back a 75-point morning gain, but it finished strong, gaining 49.54 points to 7,722.33.

Leading technology shares and smaller-company issues were mostly lower throughout the day, weighing down the Nasdaq market.

Stocks started the day flat, but the blue-chip sector quickly drew a boost from the bond market, where long-term interest rates fell after reports suggested some moderation in factory activity and construction spending. The temporary afternoon pullback came with the release of a report showing some strength in retail sales.

The good news came from the National Assn. of Purchasing Management’s monthly survey, which showed an increase in manufacturing activity in June, though at a slower pace than economists had expected.

The data soothed recent jitters over the Fed’s interest rate policy meeting, which began Tuesday and concludes today.

“I don’t think anybody’s scared at this point,” said Arnie Owen, managing director of capital markets at Cruttenden Roth. “I certainly don’t think anyone sees any inflation out there.”

The bond market shot higher on the purchasing managers’ report, sending the price on the benchmark 30-year U.S. Treasury up and lowering its yield to 6.73% from 6.78% on Monday.

Advancing issues outnumbered decliners by a 3-2 margin on the New York Stock Exchange in heavy trading.

The Standard & Poor’s 500-stock list rose 5.89 points to 891.03, and the NYSE composite index rose 3.57 points to 466.01.

But the Nasdaq composite index, which is dominated by technology shares and smaller companies, fell 3.82 points to 1,438.25, and the Russell 2,000 index of smaller companies fell 2.24 points to 394.13.

While Wall Street is nearly unanimous in expecting the Fed to leave interest rates steady today, it still faces a critical test in the monthly data on payrolls and wages.

That report is due Thursday instead of its traditional Friday release because of the Independence Day-shortened workweek.

Among Tuesday’s highlights:

* Financial issues, which enjoy better profits when interest rates aren’t rising, led the Dow’s advance: J.P. Morgan rose 2 7/8 to 107 1/4, Travelers Group rose 1 11/16 to 64 3/4 and American Express rose 1 1/4 to 75 1/2.

In the broader market, financial issues gained as well. BankAmerica Corp. rose 1 3/16 to 66 3/8, NationsBank rose 13/16 to 65 3/8, Citicorp jumped 2 3/4 to 123 5/16 and Bank of New York rose 1 1/16 to 44 11/16.

The Dow also drew a boost from IBM, up 1 9/16 to 91 13/16, but most big-name technology issues retreated. In Nasdaq trading, Intel fell 2 3/4 to 139 1/16, Dell Computer fell 3 1/16 to 114 3/8, and Microsoft fell 1 7/16 to 124 15/16.

Other tech issues declined, including Oracle, off 1 13/16 to 48 9/16, and Computer Associates, down 1 1/2 to 54 3/16.

In commodities trading, soybean prices fell on talk that imports from Brazil will ease tight supplies in the U.S. before an expected record crop is harvested in the Midwest this fall.

Overseas, Tokyo’s Nikkei stock average fell 2.1%, Frankfurt’s DAX index rose 0.9% and London’s FTSE-100 rose 2.7%.