Stocks Gain, Yields Decline As Fed Holds

Wall Street advanced and bond yields pulled back on Tuesday as the Federal Reserve Board met and decided against tightening credit--potentially flashing a green light to investors as the second quarter begins, analysts said.

The Dow Jones industrial average snapped a four-day losing streak to rise 17.69 points to 8,799.81. That left the blue-chip index up 891.56 points, or 11.3%, for the first quarter.

Winners topped losers by 19 to 10 on the New York Stock Exchange, where volume ballooned to 675 million shares.

The Dow was hit by a late sell-off after trading as high as 8,898. But some broader indexes held their gains and reached new highs: The Nasdaq composite gained 16.98 points, or 0.9%, to a record 1,835.68, lifting its gain for the quarter to 16.9%.

The Russell 2,000 index of smaller stocks rose 0.9% to a record 480.68. It advanced 10% for the quarter.

The Standard & Poor’s 500 index was up 0.8% for the day and 13.5% for the quarter. Including reinvested dividends, the S&P--the; major benchmark for U.S. market performance--gained about 13.8% for the quarter.

The Fed’s decision to leave its key short-term interest rate, the federal funds rate, unchanged at 5.5% was widely expected, but it still lent a positive tone to markets.

In the bond market, yields eased across the board. The bellwether 30-year Treasury bond ended at 5.93%, down from 5.97% on Monday and up slightly from 5.92% at year’s end.

Bonds were also helped Tuesday by economic data that indicated the economy’s growth remains healthy, with no sign of inflationary pressures.

“We’ve got very impressive growth and low inflation,” said Mitchell Stapley, who oversees about $2.5 billion in bonds at Lion Street Asset Management in Columbus, Ohio. “The Fed isn’t going to mess around with that.”

Many Wall Street bulls expect U.S. growth to slow in the second quarter, as Asia’s economic crisis begins to translate into weaker sales growth for American multinational companies and greater competition for domestic-oriented companies in the form of cheaper imports.

And if growth slows, with the Fed holding short-term rates steady, long-term bond yields could continue to decline, some experts say.

“Bonds have a good backdrop in here,” said George Adell, a trader at Philadelphia-based Starboard Capital Markets. Now, “we may finally see the [economic] numbers showing we’re starting to slow.” He expects the 30-year T-bond yield to fall to 5.65% by July 1.

Continued weakness in key commodity prices also could help bonds. On Tuesday, oil prices sank again amid doubt that a landmark agreement by the Organization of Petroleum Exporting Countries to cut production would succeed in steadying the market. Near-term crude oil futures in New York fell 60 cents to $15.61 a barrel.

For the stock market, already trading at or near record levels--and facing slowing corporate earnings growth--lower interest rates may be needed to justify even higher prices, many analysts say.

Among Tuesday’s highlights:

* Technology issues gained, led by Motorola, which soared $3.31 to $60.75 on reports that it plans a major restructuring. The company confirmed the reports but provided no details, saying in a statement that any reorganization “will be designed to create growth and new opportunities.” An announcement could come in several weeks.

Other tech issues rising included Microsoft, up $1.56 to $89.50; Xylan, up $1.38 to $24.38; FileNet, up $4.13 to $48.88; and Advanced Micro Devices, up $2.50 to $29.06.

* Bank stocks rose as bond yields fell. BankBoston jumped $2.31 to $110.25 and Citicorp rose $2.31 to $142.

* Tobacco stocks fell after Senate Commerce Committee Chairman John McCain (R-Ariz.) proposed a bill that would deny cigarette makers key legal protections agreed to last summer. Philip Morris fell $1.31 to $41.69, and RJR Nabisco Holdings dropped $1.88 to $31.31.

* Oil-related stocks fell with crude prices. Chevron dropped $2.75 to $80.31, and Schlumberger lost $1.25 to $75.75.

* American Home Products rose $3.63 to $95.38 on news that a study has found that the company’s Redux obesity drug, taken off the market last year because of safety concerns, does not significantly increase heart-valve problems. Other drug shares also jumped.

* Nextel Communications leaped $3.69, or 12%, to a four-year high of $33.75 after Standard & Poor’s said it will add the wireless phone company to the S&P; 500 index.

Market Roundup, D9