Market lifted by dip in interest rates, overseas rally

December 02, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks closed higher yesterday on the heels of rallies in overseas equity markets and a decline in U.S. interest rates.

Stocks soared in Europe and Japan amid signs that both regions were intensifying efforts to boost their economies, which would be good news for U.S. exporters. Renewed speculation that Germany's Bundesbank might cut interest rates today also buoyed stocks.

"It's a combination of rate-cut hopes, the bond market being up, and a sense that perhaps the worst is over in Tokyo," said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co. "I think European economies might be coming out of recession faster than anticipated."

The Dow Jones industrial average closed up 13.13, at 3,697.08, after rising as much as 27.66, to 3,711.61. The average finished slightly under its record close of 3,710.77,set on Nov. 16.

Broader market indexes also gained. The Standard & Poor's 500 Index closed 0.10 higher, at 461.89, after rising as high as 464.47. The Nasdaq Combined Composite Index soared 9.42, to 763.81.

The Dow Jones transportation average added 6.41, to a record 1,763.61, breaking the old high of 1,759.98, set Nov. 16. Leading the rise in the average, UAL Corp. rose $2.50, to $151. The American Stock Exchange Market Value Index rose 2.74, to 462.77.

Eleven stocks rose for every seven that declined on the New York Stock Exchange. Trading was active, with about 294 million shares changing hands on the Big Board.

Companies whose earnings hinge on a strong economy were among the biggest gainers. General Motors Corp. rose 50 cents, to $53.25; AlliedSignal Inc. advanced $1.125, to $72.25; and Aluminum Co. of America added $1, to $70.25.

"If they cut interest rates overseas, that's going to drive the market," said Ronald Stribley, who manages about $1 billion for Glenmede Trust Co. in Philadelphia.

Whirlpool, which stands to benefit from an economic recovery in Europe, closed up $2.75, at $62.125. Merrill Lynch analyst Jonathan Goldfarb named it the "focus" stock of the week.

Overnight, Japan's Nikkei 225 Index vaulted 718.77, or 4.38 percent, to 17,125.31, as hopes mounted that the government would take emergency steps, including giving banks tax breaks on bad real-estate loans, to foster recovery in the economy and financial markets. The Nikkei 225 had hit a 1993 low Monday amid a rash of discouraging economic reports.

Japanese companies whose American depositary receipts trade here also surged. Hitachi Ltd. ADRs, each of which represents 10 common shares, surged $3, to $73.125. Kyocera Corp. ADRs jumped $6.875, to $100.25. Each Kyocera ADR represents two common shares.

The rally spread to Europe, where British stocks soared 2.09 percent to a record high on expectations that the combination of spending cuts and modest tax increases in the government's fiscal 1994-1995 budget would spur economic growth. The FT-SE 100 Index gained 66.30, to 3233.20.

British Chancellor of the Exchequer Kenneth Clarke also estimated that inflation would stay in the government's 1 percent to 4 percent target band next year. Subdued inflation could lead to further cuts in lending rates, traders said.

Continental European stock markets also surged. France's CAC 40 jumped 43.89, or 2.08 percent, to 2,153.98, closing below its record finish of 2,231.86, reached Oct. 22. Germany's DAX gained 32.01, or 1.56 percent, to 2,089.78, just below its record close of 2,095.58, set Nov. 2.

French stocks were led by a rise in Euro Disney. The stock soared 4.2 French francs, to 36.45 francs, after a French newspaper, La Tribune Desfosses, reported that the parent company, Walt Disney Co., might spend about $500 million to shore up Euro Disney.

Also, traders said Tuesday's report showing the French unemployment rate rose to a postwar record of 12 percent in October could encourage the Bank of France to cut rates.

In New York, Disney shares advanced 87.5 cents, to $40.75, contributing to the gain in the Dow industrials.

German stocks, meantime, were buoyed by speculation the Bundesbank might cut interest rates at its twice-monthly council meeting today.The central bank last cut rates on Oct. 21. The German discount rate now stands at 5.75 percent and the Lombard rate at 6.75 percent.

Rate-cut hopes were all over the place in Europe, and that's what spilled over here," said William Lord, an equity trader at UBS Securities.

U.S. stocks were also boosted by a decline in long-term interest rates here, traders said. Bonds rebounded after yesterday's economic reports didn't show as much strength as expected.

The yield on the benchmark 30-year bond fell as low as 6.26 percent yesterday, from 6.30 percent Tuesday. "Bonds are having the best day they've had in a week, and that's helping stocks," said Mr. Lord of UBS Securities.

Among active stocks, Navistar International Corp. slumped $2.75, to $22.375, and Digital Equipment Corp. fell $1, to $35.875.

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