Dow soars 26.09 bond yields drop

May 20, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday as bond yields dropped and the dollar strengthened amid optimism that talks held yesterday will lead to a resumption of formal trade negotiations between the United States and Japan.

"There is a feeling that the Federal Reserve won't have to do anything for a while, and the dollar is kind of hanging in there," said Barry Berman, head trader at Robert W. Baird & Co., Milwaukee.

The Dow Jones industrial average soared 26.09, to 3,758.98, in its sixth consecutive rally, reaching its highest point in more than seven weeks. Gains in International Paper Co., Texaco Inc. and Chevron Corp. paced the advance.

The Standard & Poor's 500 index rose 2.80, to 456.49. The rally was led by oil companies, which gained as the price of crude oil for June delivery rose 46 cents, to $18.45 a barrel.

Meantime, the Nasdaq combined composite index climbed 5.41, 727.31. Microsoft Corp., U.S. Healthcare and Intel Corp. were the biggest gainers.

About three stocks rose for every two that fell on the New York Stock Exchange. Trading was active, with about 300 million shares changing hands by the close of trading on the Big Board.

Also boosting stocks was a flurry of computer-generated orders to buy stock that kicked in when bond yields pared earlier losses, according to Birinyi Associates.

"The bond market rallied and stocks followed," Mr. Berman said. The yield on the benchmark 30-year bond fell to 7.23 percent, after rising as high as 7.31 percent yesterday morning as the U.S. dollar weakened. The yield was 7.27 percent at the close of trading Wednesday.

Bond yields tracked movements in the dollar, which rebounded after slipping this morning when a Commerce Department report showed the U.S. trade deficit with Japan widened to $5.801 billion in March, the third-highest level on record.

A larger trade deficit is bad for the U.S. currency. It means that Japanese exporters will be selling more dollars for yen when they bring their profits home.

The dollar strengthened later as Japanese and U.S. trade negotiators met in Washington yesterday to restart talks that collapsed in February. The progress eased concern that the Clinton administration will try to curb Japan's trade surplus by talking down the dollar.

The dollar was last quoted at 104.30 yen, up from 103.56 yen yesterday, and was little changed against the German mark.

Investors were concerned that the Fed would need to raise rates again to support a flagging dollar. Higher rates make fixed-income investments such as bonds and bank savings accounts more attractive than stocks.

Conversely, a stronger dollar could help stocks by attracting overseas investors and creating more liquidity in the market, said Gail Dudack, chief market technician at S.G. Warburg & Co.

DSC Communications Corp., Ask Group Inc., Telebit Corp., Cisco Systems Inc. and AT&T Corp. were the five most active U.S. stocks.

Shares of Ask Group Inc. rose $3.9375, to $12.9375, after Computer Associates International Inc. agreed to buy the software company for $13.25 a share, or about $310 million. Shares of Computer Associates rose 50 cents, to $36.

DSC plunged $8.6875, to $49.0625, after the company lost in the bidding to provide equipment to Bell Atlantic Corp., which said it plans to build an $11 billion video network in six major markets within 18 months. The telephone company hired General Instrument Corp. and Broadband Technologies Inc. to be suppliers for the network and AT&T Corp. to be the prime contractor.

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