Markets Surge on Tokyo Rally and Easing of Tensions in Iraq

Blue-chip stocks soared Monday after a rally in Tokyo’s market and signs of easing tensions in the Iraqi weapons inspection dispute brought relief to Wall Street.

Treasury bond prices also rose, and the dollar was higher against the Japanese yen.

The Dow rose 125.74 points to 7,698.22, giving it a three-session gain of nearly 300 points. The blue-chip barometer, up as much as 166 points during the session, is now less than 20 points short of where it stood before the Oct. 27 plunge, but is still 550 points shy of record territory.

Broader stock indicators also rallied after Japan’s main stock index surged 8% amid optimism that the Japanese government will act aggressively to revive its sagging economy. The rebound on the Nikkei-225 index, which last week slid to a 2 1/2-year low, energized key markets around the world.

Investors were also heartened by cooling tensions in the latest U.S.-Iraqi standoff and another strong day in the bond market, where interest rates fell to their lowest level in nearly two years as another report eased inflation worries.

“There’s a feeling that maybe the spiral downward of bad news might have run its course for the time being,” said Alfred Kugel, senior investment strategist at Stein Roe & Farnham.

The Tokyo rally came as the Japanese central bank pledged to protect depositors affected by Monday’s failure of Japan’s 11th-largest commercial bank. That raised hopes for a broader bailout for Japan’s banks, which have been saddled with bad loans amid the collapse of real estate and stock prices.

“People have been looking for some sort of stabilization in Asia,” said William P. Miller, chief investment officer at American Express Asset Management Group in Minneapolis, cautioning that U.S. stocks are still vulnerable to overseas jitters.

Investors were also cheered by October industrial output data that fell below Wall Street expectations. The Federal Reserve Board reported industrial production was up 0.5% in October, less than the 0.6% increase economists had forecast.

Treasury bonds were also higher with the price of the bellwether 30-year Treasury up. Its yield fell to 6.06% from Friday’s 6.10%.

Today, the government will issue the October consumer price index, which economists expect will follow the mild inflation trend.

The New York Stock Exchange rose 8.82 points to 494.88, as advancing issues outnumbered decliners by a 3-1 margin in heavy trading.

The technology-laden Nasdaq composite index jumped 30.60 points to 1,614.11; technology stocks rebounded for the third straight session after moving lower on concerns about that sector’s interests in Asia. The Standard & Poor’s 500-stock index rose 17.85 points to 946.20 as the Russell 2,000 index of smaller companies rose 7.24 points to 435.65. The small-company-dominated American Stock Exchange composite index rose 6.38 points to 679.00.

Among Monday’s highlights:

* Financial stocks, hammered last week amid worries about their loan portfolios in Asia and Latin America, led the advance as the Dow’s biggest gainers. Citicorp rose $4.25 to $123.50, and Chase Manhattan rose $5.25 to $108.88. J.P. Morgan rose $4.19 to $11.44, and Travelers Group rose $2.88 to $73.50.

* The about-face among tech issues was led by Dell Computer, up $5.50 to $84.63, and Compaq Computer, rising $3.44 to $66, as the most active NYSE issue. IBM rose $2 to $103.50, but Hewlett-Packard, the Dow’s other technology component, rose just 63 cents, to $62.25, after struggling in advance of its latest profit report. The results, which came after the close of trading, were slightly below Wall Street forecasts.

Overseas, signals from Japan that the government must reverse fiscal gears to support its economy propelled Tokyo’s 225-share Nikkei index 7.96% higher, up 1,200.80 to 16,283.32.

In other world stock markets, Hong Kong’s Hang Seng index rose 462.42 points, or 4.64%, to 10,419.76, and London’s FTSE-100 gained 125.2 points, or 2.64%, to 4,867.

Oil prices, meanwhile, dropped on the easing of tensions between Iraq and the U.S. The U.S. indicated it would use diplomacy to resolve the dispute with Iraq over U.N. weapons inspections.

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Market Roundup, D13