Stocks ride rallies in government bonds, foreign markets, dollar

May 11, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks advanced yesterday, ending a two-day slide, as U.S. government bonds, overseas stock markets and the dollar all rallied.

Bonds and the dollar gained as Germany lowered a key money market interest rate and a sale of $17 billion of three-year TC Treasury notes drew strong demand.

"We're not out of the woods yet, but I think the bulk of the selling is over," said Marshall Front, managing director of Trees Front Associates Inc. in Chicago, which manages about $100 million.

The Dow Jones industrial average surged 27.37, to 3,656.41, as yields on the benchmark 30-year Treasury bond fell to 7.50 percent from 7.63 percent Monday. AT&T Corp., which won a $4 billion contract to supply equipment to Saudi Arabia, paced the advance.

The Standard & Poor's 500 index rose 3.69, to 446.01, fueled by telecommunications, oil, automobile, regional bank and drug stocks.

The Nasdaq combined composite index gained 2.04, to 725.00, boosted by Microsoft Corp., Oracle Systems Inc., McCaw Cellular Communications, Intel Corp. and Price/Costco Inc.

Almost 13 stocks advanced for every nine that fell on the New York Stock Exchange, where volume grew to 298.3 million shares from 250.8 million Monday.

The dollar gained when Germany lowered a money-market rate to 5.35 percent from 5.41 percent, and as Clinton administration officials said the United States never tried to drive up the value of the yen to narrow the trade deficit.

The dollar rose to 1.6735 marks, up from 1.6539 Monday, and 104.39 Japanese yen, up from 102.71.

The Bundesbank's rate move sparked speculation that other European nations will follow suit in an attempt to stimulate their economies. That lifted the dollar overseas before U.S. markets opened, later boosting bonds and stocks.

Bonds climbed as a surging dollar generated demand for dollar-denominated securities.

Some traders expect U.S. stock and bond markets will rally further when the Federal Reserve raises rates by as much as a half-point. The central bank already raised the federal funds rate -- the rate banks charge each other for overnight loans -- three times this year, to 3.75 percent from 3 percent.

"The Fed's got the market kind of where it wants it," said Joseph DeMarco, managing director for equity trading at HSBC Asset Management, a unit of Hongkong & Shanghai Bank. "There's an expectation a hike is coming, but there's a question of whether it's a quarter or a half point."

The Fed may find its answer in the April producer price index set for release tomorrow and the consumer price report to be issued Friday. If inflation stays under control, the Fed may keep the next rate increase to a quarter-point, Mr. DeMarco said.

Higher rates are expected to slow the economy, crimping corporate earnings, but they also will help Treasury bonds and the dollar by showing the Fed's resolve to fight inflation.

"The market will rally" when the Fed raises rates, Mr. Front said. He expects fed funds to rise to 4.5 percent by the end of the year.

AT&T rose $1.125, to $52.875. The telecommunications contract from Saudi Arabia to supply 1.5 million digital phone lines and other services and equipment was the largest ever awarded outside the United States.

IDB Communications Group Inc. rose $1.875, to $15.875. The company said its IDB Worldcom unit signed an agreement with Saudi Arabia's telecommunications ministry to provide direct long-distance telephone service with the United States.

Perrigo Co. plunged $5.75, to $13.125. The drug and beauty products maker projected slower fourth-quarter sales growth, prompting analysts to cut earnings estimates and investment ratings.

Boston Chicken Inc. jumped $1.25, to $37.50. The restaurant chain earned 13 cents a share in the first quarter, compared with a loss of 7 cents a share one year ago and analysts' estimate of 11 cents a share.

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