Oil shares, optimism on rates lift stocks Dow up 24 Benchmark bond yield dips to 5.95%

WALL STREET

September 28, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks advanced yesterday, led by a rally in the shares of international oil companies and optimism tied to a decline in long-term interest rates.

"In one day, the stock market made up for much of last week's problems," said Don Hays, investment strategist at Wheat First Butcher & Singer.

The Dow Jones industrial average, which tumbled more than 70 points last week, gained 24.59, to 3,567.70. Standard & Poor's 500 Index rose 4.18, to 461.81, while the Nasdaq Combined Composite Index closed 5.30 higher, at a record 759.95.

Advancing common stocks led decliners by about 11-to-6 on the New York Stock Exchange. The American Stock Exchange Market Value Index advanced 1.91, to 456.44.

Oil stocks rallied on reports the Organization of Petroleum Exporting Countries agreed to a fourth-quarter production ceiling of 24.5 million barrels a day. That's below the 24.7 million barrels that the group's members currently produce.

Oil prices rose, as did shares of major oil producers. Texaco Inc. rose 37.5 cents, to $65; Amoco Corp. advanced $1, to $55; British Petroleum Plc gained $1.50, to $57.625; and Royal Dutch Petroleum Co. increased $1.375, to $100.25.

"I doubt the rally in oil stocks will last long," said Barry Berman, head trader at Robert W. Baird & Co. "The OPEC agreement means little because the countries are so bad at policing each other."

Long-term interest rates fell amid more evidence that the economic recovery was losing steam. The National Association of Realtors reported that home resales fell 1.3 percent in August, the first decline in six months.

The yield on the benchmark 30-year Treasury bond fell to 5.95 percent from 6.05 percent at Friday's close. The record low is 5.84 percent, set Sept. 8.

The decline in rates also was tied to a report that the Federal Reserve was not inclined any longer to raise interest rates, reflecting an easing of concern about inflation.

In addition, U.S. Treasury Secretary Lloyd Bentsen said at this weekend's meeting of the Group of Seven industrial nations that rates would decline in Europe as the pace of inflation slowed.

"It seems obvious that rates are going to have to come down in Europe, given the sluggishness of the economies over there," said Thom Brown, a managing director at Rutherford, Brown & Catherwood Inc. "Lower rates in Europe help make U.S. stocks more attractive."

U.S. stocks benefit from declining rates because investors are more inclined to accept the potential returns that stocks offer than the returns on fixed-income securities.

Stocks rallied in Europe. Britain's FT-SE 100 Index rose 21.1, or 0.7 percent, to 3,026.3; France's CAC 40 Index gained 16.01, or 0.77 percent, to 2,108.61; and Germany's DAX Index soared 26.32, or 1.4 percent, to 1,912.18.

Investors overlooked the tense situation in Russia and focused on falling interest rates, said William Raftery, analyst at Smith Barney Shearson Inc. "Bonds are up strongly, and that's going to translate into higher stock prices," he said.

Not everyone's inclined to buy at current prices, though. "We're having a tough time finding stocks at bargain levels," said Charles Brandes, managing director of Brandes Investment Partners Inc. "We want stocks that are trading at low price-to-cash-flow and low price-to-earnings levels."

Mr. Brandes said the $1.3 billion portfolio he manages was going into an increasing number of European and Latin American stocks, where "there are definitely more bargains."

Trading yesterday was moderate, as about 245 million shares changed hands on the Big Board.

Spectrum Information Technologies Inc., Synoptics Communications Inc., Intel Corp., U.S. Healthcare Inc. and Novell Inc. were the five most actively traded issues on the U.S. composite.

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