Stocks Soar, Rates Fall on Low Inflation Data

Blue-chip stocks on Thursday scored their best gains in a year as bond yields fell in the wake of weaker-than-expected wage inflation data.

The rally, which sent the Dow Jones industrial average up 227.64 points, or 2.2%, to 10,622.53 in extremely heavy trading, raised hopes that Wall Street’s latest slump has run its course.

Stocks exploded higher at the opening of trading as long-term bond yields slid, reacting to the government’s report that although economic growth surged in the third quarter, wage inflation was surprisingly muted.

“You have the best of both worlds--higher-than-expected growth and lower-than-expected inflation,” said Robert Bloom, chief investment officer for Friends, Ivory & Sime, which manages $4.3 billion. “It’s confirmation that the situation remains very bullish for stocks and bonds.”

The bellwether 30-year Treasury bond yield fell from 6.33% at Wednesday’s close to 6.26% by mid-morning on Thursday, where it remained. Shorter-term yields also pulled back.

The Dow rocketed immediately Thursday, reaching about 10,625, then held that gain for the rest of the session.

The broader Standard & Poor’s 500, by contrast, continued to inch higher in the late afternoon. It zoomed 45.73 points, or 3.5%, to end at 1,342.44, its high for the day.

It was the S&P; index’s biggest gain in a year. The Dow’s gain was its biggest since Sept. 3.

The Nasdaq composite index leaped 2.6% and the Russell 2,000 index of smaller stocks rose 1.5%.

Buyers poured into a wide cross-section of stocks, leaving 22 stocks up for every 9 that fell on the New York Stock Exchange. About 1.12 billion shares changed hands on the NYSE, for the second-busiest day this year.

The day’s hottest stock group: financial shares, including those of banks, brokerages and insurance companies. Those stocks began to rise last week, after Congress and the White House agreed on reforms to banking laws that date to the Depression era.

But the financial stocks’ gains also may be signaling that interest rates have peaked, some experts say.

The market has been depressed by fear that the Federal Reserve might continue to tighten credit well into 2000, to dampen inflation pressures. If those pressures aren’t there, the Fed may not feel compelled to raise short-term rates much more, analysts note.

But some bond traders said the wage inflation data might not deter the Fed from another rate hike when policymakers meet Nov. 16.

“The issue is not closed, of course,” said Michael Moran, chief economist at Daiwa Securities America, noting that the Fed will be closely watching next week’s employment report for October.

Some bond analysts expressed disappointment that yields didn’t fall more sharply on Thursday, given the smaller-than-expected rise in the employment cost index in the third quarter. Many bond investors still are reluctant to step up and buy, even with yields at two-year highs.

Falling oil prices--another anti-inflationary sign--also should have helped bonds, some said: Near-term crude oil futures dived $1.24 to $21.68 a barrel in New York, as oil demand has been weaker than expected recently.

Some also expressed concern that Fed Chairman Alan Greenspan, who has openly worried about the possibility of a stock market “bubble,” might be more encouraged to raise rates if stocks continue to rebound.

Bearish analysts said buyers overreacted Thursday. Experts also noted that some buying may have been “short covering” by traders who had previously bet that prices would continue to slide.

In any case, “the market was looking for an excuse to go up,” said Bernie Schaeffer, chairman of Schaeffer’s Investment Research.

Among the day’s highlights:

* Stocks hitting record highs included American Express, up $10.38 to $161, and GE, up $4.56 to $133.

* Among financials, Citigroup surged $3 to $54.13, Merrill Lynch leaped $3.63 to $78.75 and Washington Mutual rose $2.06 to $35.94.

* America Online soared $6.88 to $126.50 in late trading after announcing a 2-for-1 stock split.

Bloomberg News was used in compiling this report.

Market Roundup, C8

* IS IT OVER?

Analysts debate whether stock market pullback has ended. C4

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Buying Panic A surge of buying powered some blue-chip stocks to huge gains on Thursday. A sampling: *--*

Thurs. close Pct. Stock and chng. gain Goldman Sachs $72.00, +$7.63 11.9% Chas. Schwab 37.25, +3.38 10.0 Cigna 72.94, +5.94 8.9 Viacom A 45.69, +3.50 8.3 Amer. Express 161.00, +10.38 6.9 Time Warner 67.25, +4.25 6.8 Sun Microsys. 98.63, +6.00 6.5 Citigroup 54.13, +3.00 5.9 Proc. & Gamble 104.63, +5.38 5.4 Wal-Mart 55.75, +2.75 5.2 Bristol-Myers 77.94, +2.75 3.7 GE 133.00, +4.56 3.6 S&P; 500 1,342, +45.73 3.5

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Source: Times research