Mergers, Bargain Prices Push Stocks Higher
Stocks rose for a third straight session Monday as corporate mergers and bargain prices lured investors back to a market that is again inching toward record heights.
The Dow Jones industrial average rose 109.54 points to close at 10,909.38.
Broader stock indicators also closed higher. The Standard & Poor’s 500 index rose 6.77 points to 1,334.52, and the Nasdaq composite rose 45.87 points to 2,524.21 as technology leaders and upstart Internet companies notched solid gains.
Trading got a boost from the announcement of several mergers, particularly a $14.8-billion deal between AlliedSignal and Honeywell that would create an aerospace parts-and-electronics conglomerate. On the New York Stock Exchange, AlliedSignal rose $4.44 to close at $62.81 and Honeywell gained $7 to close at $112 as investors applauded the cost savings expected from the merger.
First Security rose $5.75 to close at $24.38 after agreeing to merge with Salt Lake City rival Zions Bancorp in a deal worth $5.9 billion. Zions fell $6.81 to $58.63.
A number of Dow stocks benefited from positive recommendations from Wall Street analysts. American Express rose $2.75 to $128 after Prudential Securities raised its rating on the stock, citing rising credit card use in the U.S. and overseas.
IBM, which saw its price slump last month, rose $4.50 to $120.50 after a J.P. Morgan analyst said IBM’s stock could reach $150 within 12 months. The analyst said strong sales of IBM’s electronic-business software are helping its bottom line.
The broad base of good corporate news heartened Wall Street.
“It’s one of those sessions where all is right with the world,” said Ned Collins, a trader at Daiwa Securities America.
Nasdaq, which had dipped as much as 10% below its April 26 record of 2,652.05, is now just 4.8% short of that mark.
Volume remained light as traders began looking ahead to Friday, when the government’s producer price index is expected to offer signals about inflation and perhaps an indication of whether the Federal Reserve will raise interest rates to keep the economy from overheating.
Stocks have slipped in the weeks since the Fed warned it might raise rates, and volume has been lower than normal as Wall Street weighs the effect of a possible increase on corporate profits.
Many analysts say the dip has finally brought buyers back into the market.
“Stocks got really oversold,” said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara. “There’s a general feeling that bargains are available.”
Advancing issues outnumbered decliners 7 to 5 on the New York Stock Exchange on Monday.
The NYSE composite index rose 2.42 points to 636.94, while the American Stock Exchange composite fell 2.83 points to 778.15 and the Russell 2,000 index of smaller companies gained 4.32 points to 446.65.
Bond yields were little changed, benchmark 30-year Treasuries holding at 5.96%.
Among the highlights:
* Even with the gradual rally in recent weeks, analysts fret about the lack of a consistent leading sector, and on Monday drug stocks couldn’t keep up with the broader market. Eli Lilly fell $3.38 to $71.88, and Pfizer lost $4.13 to $111.
* Bargain hunting lifted tech stocks such as Dell Computer, up $1.88 to $35.75, and Hewlett-Packard, up $3.50 to $94. “It’s a trading opportunity because a lot of these [computer] stocks are considered to be cheap,” said Leonard Hefter, manager of Jefferies & Co.’s Nasdaq trading desk in Dallas. “They have sold off, and if the market continues to show signs of strength, they’re going to be the leaders again.”
* Internet shares rallied after analyst Mary Meeker at Morgan Stanley Dean Witter said the declines in stocks such as @Home were “overdone” Friday.
@Home jumped $9.25 to $103.75, EBay surged $14.75 to $183.25, Yahoo climbed $4.44 to $151.88 and Priceline.com zoomed $11.19 to $101.50. CMGI vaulted $13 to $107.25 after the Internet venture company said Dell and Microsoft each bought stakes in NaviSite, a majority-owned subsidiary of CMGI.
Overseas, Japan’s Nikkei stock average rose 1.1%, Germany’s DAX index gained 1.7%, Britain’s FTSE-100 advanced 0.8%, and France’s CAC closed up 1.4%.
*
Market Roundup, C16
