Stocks gain as interest rates decline, utilities rally

January 27, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday as interest rates declined and utility issues rallied.

Telephone, retail, bank and tobacco stocks also climbed.

Long-term interest rates -- as reflected in the yield on 30-year Treasury bonds -- fell amid expectations the Federal Reserve Board would leave interest rates unchanged for months. That view was supported by Fed Governor John LaWare, who said inflation isn't accelerating and consumer prices may rise 2.5 percent this year.

A turnaround in the Dow Jones utilities average, often used as an interest rate barometer, helped push the rest of the market higher, said Joseph DeMarco, managing director of equity trading at Marinvest, a unit of HSBC Asset Management.

The 15-stock utility average rebounded 3.49 points, to 221.46, after falling Monday to its lowest level in more than a year. "Maybe that's a sign of a bottom in the utility index, which would help support, to some degree, the level of the market," Mr. DeMarco said.

The Dow Jones industrial average rose 12.66, to 3,908, ending a two-day decline. Gains in Sears Roebuck and Co., Bethlehem Steel Corp. and J. P. Morgan & Co. fueled the average's advance.

The Nasdaq Combined Index gained 2.41, to 788.80, led by rises in MCI Communications Corp., Nextel Communications Inc. and Oracle Systems Corp.

In the broader market, the Standard & Poor's 500 Index climbed 2.28, to 473.2.

Almost 10 common stocks advanced for every seven that declined on the New York Stock Exchange. Trading was active as 304.6 million shares changed hands, down from 326.1 million Tuesday.

The rise in the Dow Jones utilities average may suggest investors are less concerned about interest rates.

As rates move up, investors tend to switch funds to fixed-income securities from the stock market.

Stock market analysts watch the Dow utilities average to try to anticipate which way interest rates will go. When the average falls, it's a sign that interest rates may be ready to rise, said Christine Callies, market analyst at Brown Brothers Harriman & Co. "That isn't good news for the stock market."

Among utilities that rebounded yesterday, American Electric Power rose 75 cents, to $35.875; Public Service Enterprise Group rose 75 cents, to $30.75; Consolidated Edison of New York Inc. gained 62.5 cents, to $31; and Detroit Edison Co. increased 50 cents, to $29.125.

Traders said the direction of long-term rates may be influenced more by tomorrow's release of fourth-quarter gross domestic product statistics than Tuesday's and yesterday's Treasury note auction.

The GDP report is expected to show the economy grew at an annual rate of 5.4 percent in the final quarter of 1993, the fastest rate since late 1992, according to a Bloomberg Business News survey of 17 economists.

Intel Corp., Cooper Industries Inc., Tele-Communications Inc., President Riverboat Casinos and Spectrum Information Technologies Inc. were the most active stocks.

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