Stocks Rally on Talk of Major Drug Merger
U.S. stocks rose for a fifth time in six sessions, led by drug shares, after merger talks between SmithKline Beecham and American Home Products ignited speculation that other acquisitions may follow.
The Dow Jones industrial average rose 119.57 points, or 1.5%, to 7873.12, its biggest gain since Dec. 30. The Standard & Poor’s 500 index rose 17.09, or 1.8%, to 978.60, and the Nasdaq composite index jumped 27.26, or 1.7%, to 1590.14. Six of the top 10 gainers in the S&P; 500 were drug stocks.
The rise in the Dow spurred hopes of a rally in Asia today. Australian and Malaysian shares bounded ahead in early trading as dealers hoped Wall Street’s returning confidence would rub off on the whole Asian region.
However, the Indonesian rupiah plunged 15% early today to a record low as investors rejected President Suharto’s plans to run for a seventh term and suggested a protege may become vice president. The rupiah fell to as low as 12,000 a U.S. dollar, its lowest since the currency began trading in 1971.
Comments by Gary Stern, president of the Federal Reserve Bank of Minneapolis, fueled the U.S. market’s advance. The official said it is “less likely” the central bank will raise interest rates in the coming months because cheap Asian imports will keep U.S. inflation in check. Low rates boost the attraction of returns offered on stocks.
So far this quarter, 106 companies in the S&P; 500 have reported earnings for the quarter ended Dec. 31. Of them, 43% topped expectations, 26% fell short of estimates and the rest were in line. At this point last quarter, about 55% of the companies had exceeded forecasts and 25% were below.
The market’s advance was tarnished by declines in financial stocks after J.P. Morgan and Merrill Lynch said they earned less last quarter from trading bonds and other securities in Asia. Merrill Lynch fell $1.81 to $65, J.P. Morgan fell $1.63 to $105.25, but Chase Manhattan rose $1.69 to $107.19.
Among Tuesdays U.S. market highlights:
* Drug makers recorded their biggest rally since Oct. 28. The AMEX Pharmaceuticals Index rose 28.16, or 5.1%, to 580.84, as SmithKline’s American depositary receipts rose $2.56 to $59.56 and American Home surged $13.56 to $94.25. Merck climbed $5.75 to $115.50, Eli Lilly gained $2.63 to $69.63 and Warner-Lambert jumped $9.13 to $138.25. Pfizer jumped $3.81 to $80.81 after topping earnings estimates.
* Apria Healthcare Group shares fell 20% after the company said the chief executive and two other top managers will step down and warned that earnings will be below analysts’ estimates. The Costa Mesa-based firm fell $2.25 to $9.25.
* Diamonds, a newly created unit investment trust designed to mimic the performance of the Dow Jones industrial average, sparkled in its first day of trading. With 1.7 million shares changing hands, Diamonds shares were the third-most widely traded stock on the American Stock Exchange on Tuesday and the most hotly traded new issue in the AMEX’s history. It closed at $78.81.
* Tobacco stocks fell as Minnesota’s trial against tobacco companies got underway. Philip Morris fell $1.69 to $43.63, RJR Nabisco fell 94 cents to $37.44 and UST slipped $1.06 to $33.69.
* Continental Airlines, Lucent Technologies and Reynolds Metals rose after reporting better-than-expected earnings. Lucent jumped $5.56 to $81, Continental rallied $3.13 to $52.75 and Reynold Metals climbed $1.81 to $58.56.
* IBM rose $2.69 to $107.69, spurring computer-related shares higher, amid speculation that the world’s largest computer maker would report strong fourth-quarter earnings after markets closed. IBM reported earnings rose to $2.11 a diluted share from $1.93, falling short of estimates by 4 cents.
Bond yields rose to their highest level in almost three weeks as calm in Asia and the U.S. stock rally dampened interest in Treasury securities as safe haven investments. The yield of the benchmark 30-year Treasury bond rose to 5.84% from 5.80% late Friday. The bond market was closed Monday for Martin Luther King Day.
Market Roundup, D12
