NEW YORK -- Stocks gained yesterday, led by a rally in computer-related issues and optimism about the strength of the economic recovery.
The Dow Jones industrial average rose 13.41 points, to 3,687.58, with shares of International Business Machines Corp. leading the way. IBM rallied $1.875, to $55, after an analyst at Smith Barney Shearson Inc. raised his investment rating to "outperform."
"Computer stocks were beat up pretty bad, and they were overdue for a rise," said Gil Knight, managing director at ASB Capital Management Inc., who helps manage $10 billion in investments. "Today was the day."
The Standard & Poor's Computer Systems Index, which includes IBM, rose 2.82, to 106.87, and the S&P Semiconductor Index gained 2.24, to 181.35.
Semiconductor stocks rallied for a second straight day on signs that orders were increasing and that prices for dynamic random-access memory chips were stabilizing. Intel Corp. rose $1.125, to $60; Motorola Inc. gained 50 cents, to $96.375; Micron Technology Inc. advanced $1.375, to $45.125; and Texas Instruments Inc. rose 62.5 cents, to $64.625.
The strength in computer stocks spilled into the broader market averages. The Nasdaq Combined Composite Index gained 6.36, to 753.18, and the S&P 500 Index rose 1.33, to 462.36. The American Stock Exchange Market Value Index advanced 2.47, to 463.51.
Advancing stocks on the New York Stock Exchange exceeded declining issues by a margin of about 10-to-7. Trading was less active than usual as many investors left early to get a head start on the Thanksgiving holiday. About 231 million shares were traded on the NYSE.
"The economy is showing more and more signs of strength, and that can only be interpreted as a positive for stocks like IBM, Caterpillar and Deere," said Marshall Acuff, portfolio strategist at Smith Barney Shearson Inc.
The government said orders for durable goods climbed 2 percent in October, exceeding economists' forecasts of a 1.8 percent increase. The rise in orders helped push shares of Caterpillar Inc. up $2, to $85.625, and Deere & Co. up $3.125, to $70.75.
Shares of auto makers rallied on reports that sales in the latest 10 days were above expectations. General Motors Corp. increased $1, to $53.75; Ford Motor Co. rose $1.375, to $61; and Chrysler Corp. gained $1.50, to $53.875.
The rise in stocks was limited by concern about increasing long-term interest rates, which have gained more than half a percentage point since mid-October. The yield on the 30-year Treasury bond closed at 6.3 percent yesterday, up 53 basis points from a 16-year low of 5.77 percent on Oct. 15. The rise in rates is related to increasing evidence that an economic recovery is under way.
Low rates have been driving this year's market rally. As rates moved higher, investors gradually moved funds from the stock market into fixed-income investments where risks are minimum, Mr. Acuff said.
"We have to see rates go lower, if we are to get the stock market cranked up again," said Thom Brown, managing director at Rutherford, Brown & Catherwood Inc.
In addition to rates, U.S. stocks are facing problems from a slump in Japan, Mr. Brown said. Stocks fell again in Japan, where the Nikkei 225-Stock Index slumped 317.73 points, to 17,067.11, on concern that banks would report lower-than-expected earnings for the first half of the year. The Nikkei 225 has fallen 19 percent in value since Sept. 13.
"Japan is sick and getting sicker," Mr. Brown said. The slump raises concern that leading Japanese banks and insurance companies might move funds from the U.S. markets in an effort to stabilize their own markets, he said.
British Petroleum Plc, IBM, Merry-Go-Round Enterprises Inc., Paramount Communications Inc., Intel and WMX Technologies Inc. were the six most actively traded issues on the U.S. Composite.
WMX Technologies advanced $1.25, to $26.625. The environmental services company was raised to "buy" at Prudential Securities.
Philip Morris Cos. rose 62.5 cents, to $55.50, after the company said it would slash 14,000 jobs as it seeks to improve profit margins. Shares of its rival RJR Nabisco gained 12.5 cents, to $6.50.
Compaq Computer Corp. advanced $1.25, to $70. The maker of personal computers was named "Focus 1" stock of the week at Merrill Lynch & Co. and was rated a "buy" in a new report issued by CS First Boston.