Falling interest rates boost stocks

January 08, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday to record levels, led by shares of banks, brokerages and telephone companies, which were bolstered by a fall in interest rates.

The Dow Jones industrial average climbed 16.89, to a record 3,820.77, ending the week with a 66.68-point advance.

Standard & Poor's 500 Index climbed 2.78, to 469.90, closing below its Dec. 28 high of 470.94. The Nasdaq Combined Index rose 2.53, to 782.94, closing at its highest level in more than two months but below its Oct. 15 high of 787.42.

The American Stock Exchange Market Value Index advanced 0.49, to 479.49. Ten common stocks were higher for every seven shares that fell on the New York Stock Exchange.

"The market was buoyed by stock groups, like banks and telephone companies, which do best when interest rates fall," said Bill Beise, a partner at Wessels Arnold & Henderson in Minneapolis. "Rates were down today."

The S&P Regional Bank Index rallied 4.05, to 176.54, as Banc One Corp. rose $1, to $38, and Wells Fargo & Co. advanced $3.125, to $130.75. The S&P Telephone Index rose 3.15, to 313.75, led by the gains in BellSouth Corp. and Southwestern Bell Corp.

Among brokerage stocks, Merrill Lynch & Co. gained $2, to $42.125; Morgan Stanley Group Inc. rose $3.375, to $72.625; Salomon Inc. surged $1.25, to $47.50; and Charles Schwab Corp. climbed $1.75, to $32.125.

The yield on the benchmark 30-year Treasury bond fell 11 basis )) points, to 6.23 percent. The decline in rates occurred after the Labor Department said the economy added 183,000 jobs, which suggested the economy is growing more slowly than expected. Economists had forecast an increase of 226,000 jobs. The employment report prompted some analysts to predict the Federal Reserve will take longer than expected to raise money market rates.

Traders and analysts said the stock market will have a tough time making further gains. "The thinking is interest rates have bottomed and will rise gradually over the next several months," said Daniel Marciano, senior vice president in equity trading at Dillon, Read & Co.

Low interest rates helped propel stocks to records in 1993, so if rates go higher, the stock market will be in trouble, Mr. Marciano said.

Trading was active, with about 324 million shares changing hands on the Big Board.

Blockbuster Entertainment Corp., Intel Corp., MCI Communications Corp., Telefonos de Mexico SA and Circuit City Stores Inc. were the five most actively traded issues on the U.S. Composite.

Trading in shares of Paramount Communications Inc., Viacom Inc., Blockbuster and QVC Network Inc. was halted late yesterday. At 4 p.m. EST, Viacom announced that it had submitted a bid to acquire 50.1 percent of Paramount shares for $105 a share in cash. The offer exceeds QVC's proposal of $92 a share in cash for 51 percent of Paramount stock. At the same time, Viacom announced plans to merge with Blockbuster in an $8.4 billion transaction. Blockbuster said it will pay $55 a share for 23 million of Viacom's class B shares.

Paramount stopped trading on the NYSE at $79.25, up 75 cents. Viacom Class B shares closed $1.75 lower, at $41; Blockbuster closed $1.50 lower, at $28.375; and QVC closed $1.25 higher, at $40.75.

Merry-Go-Round Enterprises Inc. fell 62.5 cents, to $2.875. The retailer, struggling to avoid filing for Chapter 11 bankruptcy protection, is reportedly asking creditors to wait from 60 days to as long as 18 months to be paid for bills that were due Dec. 10.

Asian closed-end funds plunged after slumps in Asian stock markets.

Shares of cellular communications companies gained after Smith Barney Shearson Inc. issued a report recommending that investors "buy" several of the stocks.

International Paper Co. rose $1.125, to $72.625. The forest products company said last night that fourth-quarter earnings will exceed expectations.

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