NEW YORK -- U.S. stocks closed higher yesterday as the market weathered concern about struggling Treasury bonds.
The Dow Jones industrial average set its third successive closing high, rising 6.22, to 3,478.34. The index rebounded in the afternoon from a session low of 3,449.43. The gain followed a report released by the Federal Reserve System that showed the economy and employment conditions improving in early 1993.
"The economy is on frail legs, but it's recovering," said Hugh Johnson, investment strategist at First Albany Corp.
The broader market averages rose more than the Dow industrials. Advancing common stocks outnumbered declining issues by almost 9-to-7 on the New York Stock Exchange. Standard & Poor's 500 Index rose 1.94, to a record 456.34, and the NYSE Composite Index advanced 1.15, to an all-time high of 251.36.
The NASDAQ Combined Composite Index soared 3.91, to 692.87, ledby gains in the health care and computer sectors. The American Stock Exchange Market Value Index rose 2.86, to 421.88.
Trading was less active than usual, with about 255 million shares changing hands on the NYSE.
Treasury bond yields rose after some Fed governors hinted that it's unlikely the Fed would cut interest rates again. Gerald Corrigan, chairman of the New York Federal Reserve Bank, said interest rates could rise drastically if Congress fails to pass President Clinton's deficit reduction program.
The yield on the benchmark 30-year bond remained steady, at 6.74 percent, while the yield on the 10-year Treasury bond rose 4 basis points, or four-hundredths of a percentage point, to 5.95 percent.
"There's a lot of hot air coming from the Federal Reserve, and that's spooking the bond market," said Peter Canelo, investment strategist atNatWest Securities.
"There's definite concern that the bond market's rally is waning, and that's going to start weighing on the stock market," said Thomas Gallagher, managing director in charge of capital commitment at Oppenheimer & Co.
The concern is that stocks become a more risky investment as bond yields go up, he said. "It's safer to own bonds that yield 7 percent than it is to own stocks, which are already at all-time highs," Mr. Gallagher said.
Some analysts said it's too early to be overly concerned about the strength of the stock market. Money continues to funnel into the stock market as individuals, discouraged by the low returns of bonds and money market funds, seek higher returns in the stock market.
Health care and pharmaceutical stocks rallied on reports that company executives were working with White House officials to work out a plan to keep a lid on prescription drug prices.