Stocks Rise on Earnings Optimism; Yields Decline

Stocks surged at the expense of bond prices Wednesday as investors bought shares in big companies amid optimism about quarterly earnings.

The dollar rose against the Japanese yen as dealers were disappointed with Japan’s pledge to stimulate its economy through permanent tax reforms.

The Dow Jones industrial average closed up 89.93 points, a gain of almost 1%, at 9,174.97.

In the broad market, advancing issues led declining ones by 17 to 12 on active volume of 607 million shares on the New York Stock Exchange.

The Nasdaq composite index rose 27.28 points, or 1.4%, to 1,935.39, beating its April 22 record closing high of 1,917.61, mostly from Intel, which surged $3.19 to $78.31.

The Standard & Poor’s 500-stock index added 11.72 points, or 1%, to close at 1,166.38, surpassing its April 22 peak of 1,130.00.

“The consensus is that the worst of the bad news about the second quarter is behind us, so it looks like clear sailing for the time being, and generally earnings momentum is going to resume with a bang in the third quarter,” said Michael Metz, managing director at CIBC Oppenheimer.

“Momentum players are going back to big tech stocks, figuring this is the next place lightning is going to strike after hot money leaves the Internets,” he said.

Stocks were boosted by record-breaking gains on European exchanges, no fresh bad news from economically ailing Asia, a surge in financial stocks and a rally in influential techs.

There is also little economic data due in the near term to cause investors to hold back, analysts said.

“The earnings season so far has not produced too many negative surprises,” said Robert Stovall, president of Twenty-First Securities.

“The senior tech stocks have also taken the play away from the Internets, or what I call the permanent lottery players.”

Internet-related stocks took a beating for a second straight session after recent gains.

“There’s probably a ton of money coming out of the Internet stocks, and all gamblers out there are now putting money back into blue chips,” said Thom Brown, managing director of Rutherford Brown & Catherwood.

U.S. bonds declined for a second day after the government and companies including Merrill Lynch & Co. sold $10 billion of bonds, creating a temporary glut of securities.

“It’s supply-related,” said Robert Alley, who manages $2.5 billion of bonds at Houston-based AIM Advisors. “We are seeing deals priced, and that is in the market pushing up yields.”

The Treasury sold $8 billion of inflation-indexed bonds, while Merrill Lynch took advantage of yields near record lows to sell $1.2 billion of notes. Fannie Mae, the nation’s largest mortgage finance company, plans to sell $2 billion of 10-year notes that will be priced tomorrow.

The yield on the benchmark 30-year Treasury bond rose to 5.63% from 5.60% on Tuesday.

Traders speculated that some investors were selling fixed-rate government securities prior to the auction so they could purchase the indexed bonds.

Among Wednesday’s highlights:

* Internet stocks took a roller-coaster ride for a second day, rebounding from an early plunge. Yahoo fell $4.81 to $186.19. After the close of trading, the No. 1 Web directory reported quarterly earnings before a charge of 15 cents a diluted share, 6 cents more than analysts had forecast. Yahoo also announced a 2-for-1 stock split.

The decline in Internet stocks freed up money for other computer-related stocks such as Intel, Microsoft and Dell Computer, traders said.

Dell gained $5.38 to $96.38, and Microsoft rallied $1.94 to a record $109.88.

Motorola fell $2.81 to $52.19 after reporting profit of a penny a share. While analysts expected a 4-cent loss, some investors were spooked by a warning from Christopher Galvin, Motorola’s chief executive, that Asia’s economic crisis will keep hurting the company’s business “for at least the remainder of the year.”

* Walt Disney got a Tina Brown bounce, up $1.75 to $108.31. Disney’s Miramax Films unit said it’s forming a new venture with the British editor to publish a new monthly magazine and produce films and television programs. Brown is leaving the New Yorker magazine, where she has been editor since 1992.

* Allergan rose $1.56 to $49 after the optical supplies company said it had better-than-expected worldwide revenue in the second quarter on strong sales of pharmaceutical products. The company also said it’s signed agreements with Santen Pharmaceutical, giving the Japanese company exclusive distribution rights for its brimonidine in Japan.

* WorldCom rose 25 cents to a record $50.63 after the fast-growing telecommunications concern won conditional approval of its purchase of MCI Communications from the European Union.

* Fremont, Calif.-based Cardima rose $6.41 to $8.97 as the medical instruments company received clearance from the Food and Drug Administration to market its Vueport guiding catheter, used in heart X-rays.

In currency trading, the dollar zig-zagged this week as Japan tax-cut optimism has risen and ebbed. In late trading, it was higher at 139.27 yen, up from 138.75 at the close Tuesday.

Oil prices rose on jitters about stability in Nigeria. Crude oil for August delivery at the New York Mercantile Exchange closed 23 cents higher at $13.85 a barrel.

Overseas, London’s FTSE-100 closed up 0.10%. Tokyo ended up 0.70%.

Market Roundup, D6