Optimism over inflation boosts stocks

April 12, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks were lifted yesterday by a rally in regional banks and drug companies amid optimism that economic reports this week will show inflation is under control.

The reports on producer and consumer prices for March will be studied for hints whether the Federal Reserve will raise the interest rate on overnight loans between banks for a third time this year to stave off inflation.

The Dow Jones Industrial Average rose 14.57, to 3,688.83, after falling 19 points Friday.

The Standard & Poor's 500 Index rose 2.77, to 449.87, after slipping 3.78, to 447.10, Friday. Regional banks, oil and drug companies led the index higher. A slump in semiconductor stocks dragged the Nasdaq 0.60 lower, to 748.11.

Today, the Labor Department will report on prices paid by businesses for materials and supplies. Tomorrow, the Labor Department will report on March consumer prices.

Investors are closely watching the reports for signs of inflation, which might encourage the Fed to raise interest rates, traders said. The Fed has raised rates twice since Feb. 4, pushing up the rate on overnight bank loans, or federal funds, to a perceived target of 3.5 percent.

Nevertheless, "the bond market seems to have taken into account amoderate rise in inflation," said James Solloway at Argus Research.

Yields on the government's benchmark 30-year Treasury bond fell to 7.23 percent from 7.26 percent at Friday's close.

Moreover, the Commodities Research Bureau's index of 21 commodities from corn to copper fell 2.40, to 222.85, yesterday, its lowest level since December. Falling commodity prices are associated with a lower inflation rate.

Drug makers and regional banks rallied yesterday after those industries were cited as two of the most promising areas for growth and stock-price gains by Peter Lynch, a trustee of Fidelity Management, and John Templeton, the retired founder of Templeton Funds, now a division of Franklin Resources.

Both recommended Johnson & Johnson, and Mr. Templeton also cited Bristol-Myers Squibb Co., Merck & Co. and Warner-Lambert Co. as good buys.

Shares of Johnson & Johnson rose $1.50, to $38.875; Warner-Lambert rose $1, to $63; and Bristol-Myers rose 75 cents, to $51.375.

Bank of Boston Corp. rose 87.5 cents, to $25.875; Shawmut National Corp. rose $1.50, to $22.125; Pamrapo Bancorp rose $1.75, to $31.25; Federal National Mortgage Association rose $2.25, to $82.75;and Federal Home Loan Mortgage Corp. gained $2.625, to $53.375.

Other banks that rallied yesterday included NationsBank Corp., up $2.125, to $51.50; First Chicago Corp., up $3.25, to $53.875; Barnett Banks Inc., up $1.125, to $46.875; and First Union Corp., up $1.25, to $44.125.

Trading was moderate, with more than 244 million shares changing hands on the New York Stock Exchange. About 10 stocks rose for every nine that fell on the Big Board.

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