Stocks rise as concern about interest rates subsides

March 08, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rallied yesterday as concern about rising interest rates eased and Martin Marietta Corp.'s $1.9 billion offer for Grumman Corp. boosted defense companies' shares.

"The stock market is still taking its lead from the bond market," said Richard Ciardullo, head trader at Eagle Asset Management. "Plus, any time you have a big merger taking place it is good for the marketplace."

The Dow Jones industrial average rose 23.92, to 3,856.22, after closing 7.88 higher Friday. Yesterday's rise in the average was paced by Caterpillar Inc., which went up $2, to $114.25, and Philip Morris Cos., up $1.875, to $56.75.

Among broader market indexes, the Nasdaq Combined Composite Index climbed 4.50, to 795.05, just a few points off its record of 800.47, reached Jan. 31. The index was buoyed by gains in Intel Corp., up $1.625, to $71.25, and Oracle Systems Corp., up $1.125, to $35.25. The American Stock Exchange's Market Value Index rose 2.58, to 469.06.

Standard & Poor's 500 index gained 2.17, to 466.91, with shares of tobacco and drug companies pacing the advance along with defense stocks. The index closed 1.73 higher, at 464.74, Friday.

Grumman shares skyrocketed $14.25, to $54.125. Martin Marietta, an aerospace and defense contractor, said yesterday that it will pay $55 a share for the Farmingdale, N.Y., defense company in a $1.9 billion transaction. Martin Marietta shares rose $1.25, to $46.

S&P's aerospace and defense index rose 10.46, to 583.91, as defense stocks rallied. Northrop Corp. added $1.75 to $41.375; Boeing Corp. gained 75 cents, to $47.75; and United Technologies Corp. rose $1, to $68.625.

Overall trading was moderate, with more than 287 million shares changing hands on the New York Stock Exchange. About two shares rose for every one that fell on the Big Board.

The five most active stocks were Intel, Price/Costco Inc., BankAmerica Corp., Merck & Co. and Telefonos de Mexico's American depositary receipts.

Stocks rebounded because both the bond and equity markets last week "reached levels that seem to discount a lot of the bad news that may lie ahead," said Hugh Johnson, chief investment strategist at First Albany Corp.

The yield on the Treasury's benchmark 30-year bond stood at 6.80 percent at the market's close, down from last week's high of 6.92 percent, which was the highest since June. The yield at Friday's close stood at 6.84 percent.

On Friday, concern that a rate increase was imminent was fueled by a Labor Department report showing the economy created 217,000 nonfarm jobs last month, more than the 140,000 new jobs that some economists had expected.

"At a yield of over 6.8 percent, bonds more than compensate for any acceleration in inflation that will take place," said James Solloway, director of research at Argus Research. "The worst of the selling is over for the bond market, and that stability will feed into stocks this week."

The Dow Jones utilities average rose 1.39, to 213.49, as the Federal Reserve didn't act to boost rates, as some had expected. The average is viewed as an indicator of where rates are headed.

Stock investors dislike rising rates because they can slow economic growth and make fixed-income investments more attractive relative to stocks.

European share prices rallied, with Britain's FT-SE 100 index rising 0.85 percent, to 3,305.90; France's CAC 40 closing 1.89 percent higher, to 2,219.89; and Germany's DAX Index closing 2.37 percent higher, to 2,108.91. Japan's Nikkei 225 Index slipped 0.77 percent, to 19,811.88.

USAir Group Inc. fell $1.25, to $9, a 52-week low. British Airways PLC said that it will delay investing an additional $450 million in the airline, although it says that it remains "committed" to reaching an accord.

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