Unexpected drop in wholesale prices helps produce 32-point surge in Dow

WALL STREET

September 11, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks, led by phone, oil and auto issues, rose for a second day as an unexpected drop in August wholesale prices drove long-term interest rates lower, investors and analysts said yesterday.

"The producer price report was the catalyst, which led to a pickup in the bond market," said Arthur Micheletti, investment strategist at Bailard, Biehl & Kaiser of San Mateo, Calif.

Amid evidence that inflation was low and the recovery weak, "the situation is back to where it was earlier in the week" before concern arose that growth was nearly at a halt, said Mr. Micheletti, who helps manage $1.1 billion in assets.

Helped by at least two surges of computer-guided buy orders, the Dow Jones industrial average soared 32.14 points to 3621.63, led by AlliedSignal Inc., Walt Disney Co. and Texaco Inc. as interest-rate sensitive and economically sensitive stocks rebounded. During the holiday-shortened week, the Dow industrials fell 12.3 points.

Advancing common stocks outpaced decliners by almost 11 to 5 on the New York Stock Exchange, where volume totaled about 270 million shares.

Broader market barometers also moved up. The Standard & Poor's 500 Index climbed 4.22 to 461.72. The Nasdaq Combined Composite Index, led by Intel Corp., Microsoft Corp. and Novell Inc., surged 6.60 to 744.31, extending Thursday's gains.

A 0.6 percent decline in producer prices in August, and a 1 percent drop in the core rate excluding volatile food and energy prices, showed inflation was in check and economic growth sluggish, traders said. Economists had forecast both rates would grow by 0.2 percent in August.

Positive inflation news, mostly caused by a 26 percent drop in wholesale tobacco prices, was bolstered by declining commodity prices. Crude oil fell 21 cents to a three-year low of $16.75 a barrel, gold slumped $4.10 an ounce to $352.40 and silver fell 17.7 cents to $4.10 an ounce.

In reaction to the inflation news, the yield on the benchmark 30-year Treasury bond fell to 5.88 percent from 5.98 percent before the Labor Department price report and 5.96 percent Thursday.

Low interest rates tend to lengthen an economic recovery, reduce companies' financing costs and lead investors to seek higher returns in stocks instead of cash deposits.

Part of the fuel for yesterday's stock market rally was provided by waning concern about the U.S. economy and Germany's move Thursday to lower interest rates, said Don Hays, director of investment strategy at Wheat First Butcher & Singer in Richmond, Va. Other European countries, including France and Italy, followed Germany's lead Thursday in a move to stimulate their economies.

In the United States, "unemployment insurance claims [Thursday] were down sharply again," dispelling recent concern about the sluggish economy, Mr. Hays said.

In the semiconductor industry, analysts said sales tend to taper off in the summer, so a report released Thursday of a seasonal decline in August new orders wasn't unusual. Sales have bucked the trend in recent months.

The rally in bank, automobile and semiconductor stocks helped offset concern about the health of the economy, said Anthony Conroy, managing director of equities at Mabon Securities Corp.

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