NEW YORK -- U.S. stocks gained yesterday for the first time in four days as the dollar rebounded and bonds rallied, easing concern the Federal Reserve will raise interest rates for the fifth time this year.
"Everyone sighed a bit of relief that the dollar stopped declining," said Brett Discher, vice president of equity trading at Dain Bosworth Inc. in Minneapolis.
The Dow Jones industrial average rose 16.80, to 3,724.77, battling back after losing more than 30 points each of the past three days. The advance was powered by gains in International Business Machines Corp., Coca-Cola Co., Du Pont Co. and McDonald's Corp.
The dollar began to gain in overseas trading before U.S. markets opened. It got a boost when Treasury Secretary Lloyd Bentsen said the United States is prepared to act in the currency markets, which analysts and traders interpreted as meaning the administration is reluctant to let the dollar fall any further. A weak dollar makes foreign goods more expensive in the United States, which can result in higher prices and rising inflation.
Bonds, which lose value when inflation rises, gained as the dollar rebounded. Stocks in turn rose as the yield on the benchmark 30-year bond, which moves in the opposite direction of price, fell to 7.40 percent from Monday's six-week high of 7.49 percent. Lower rates make stocks relatively more attractive than bonds.
"People are concerned about the dollar's weakness, and rightly so," said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co.
Stocks plunged Monday as the U.S. dollar fell to a post-World War II low against the yen, raising concern that the Federal Reserve might raise interest rates to prop up the currency. "The only way to support the dollar [in the long term] is by higher interest rates." Mr. DaPuzzo said.
The Standard & Poor's 500 index climbed 1.75, to 453.09, after sliding 4.14 Monday. Shares of semiconductor, beverage, computer and banks paced the advance.
The Nasdaq combined composite index rose 3.95, to 712.74, after tumbling 10.06 Monday to 708.79, its lowest close since April 20. The rise was driven by gains in Intel Corp., Oracle Systems Corp., MCI Communications Corp., Novell Inc. and Nordstrom Inc.
Advancing issues outpaced decliners by about four to three on the New York Stock Exchange, where 251 million shares traded hands, below the three-month average daily volume of 283.9 million.
Some analysts pointed to the late decline in stocks as evidence that yesterday's rally in stocks won't last. The failure for brokerage stocks to rally, for example, means investors don't think stocks and bonds are headed higher, said Doug Kass, strategist at J. W. Charles in Boca Raton, Fla.
"It suggests that this is nothing more than a dead-cat bounce," said Mr. Kass, who thinks the Dow industrials could fall to as low as 3,000 by year end. "If it was real, you'd have ascending prices on ascending volume."
Shares of Morgan Stanley Inc. slipped 37.5 cents, to $57.75; Alex. Brown & Sons Inc. gave up 50 cents, to $25.125; Merrill Lynch & Co. fell 12.5 cents, to $37.50; and Travelers Inc., the parent company of Smith Barney Inc., fell 12.5 cents, to $33.375.
General Electric Corp. fell 37.5 cents, to $45.75. Michael Carpenter, chairman and chief executive of the company's Kidder, Peabody & Co. brokerage unit, abruptly resigned two months after GE fired its head government bond trader when it uncovered what it claims were $350 million of bogus trading profits.