Stocks rise after investors are reassured on inflation

July 14, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks gained yesterday for the first time this week after a benign inflation report reassured investors that interest rates won't rise fast enough to crimp earnings.

A rebound in the dollar also helped ease concern that the Federal Reserve will raise interest rates anytime soon. And robust earnings at Chipcom Corp. sparked a rally in technology issues.

The Dow Jones industrial average gained 1.62, to 3,704.28. A burst of computer-driven sell orders lopped about 6.50 points off the average in the last 15 minutes of trading, according to Birinyi Associates Inc.

"The market looks healthier than it has looked in a couple of days," said Jim Benning, trader at BT Brokerage. "Earnings are starting to come in and they look pretty good, and the economy is growing nicely without any inflation."

Gains in shares of International Paper Co. and International Business Machines Corp. were partly offset by a late decline in Texaco Inc. and Chevron Corp. Chevron said it was forced to shut an oil field in Nigeria because of a strike by oil workers in

the African nation.

The Standard & Poor's 500 Index rose 0.78, to 448.73. Shares of computer systems and software makers led the advance. The Nasdaq Composite Index rose 9.78, to 719.37, as shares of Microsoft Corp., Intel Corp., and Cisco Systems Inc. rallied.

The Nasdaq index was lifted by shares of QVC Inc. The cable-television retailer's stock rose $6, to $42, after Comcast Corp. made an unsolicited offer late Tuesday to buy QVC for $2.2 billion in cash and convertible stock. The Comcast bid came the eve of merger talks between the boards of QVC and CBS Inc., which had earlier announced a $6.6 billion merger. They called off the merger after Comcast made its bid.

The Labor Department reported that consumer prices rose by 0.3 percent in June and by 2.5 percent on an annual basis in the first half of the year, lower than the 2.8 percent increase reported one year ago. The figure was in line with economists' expectations, and followed yesterday's report that producer prices were not rising as fast as economists had expected.

The CPI report tempered concerns that the Fed will raise rates to combat inflation and prop up the weak dollar. An increase in rates could slow the economy, damaging corporate earnings.

The report also sent the yield on the benchmark 30-year Treasury to 7.67 percent, down from 7.69 percent at Tuesday's close and the lowest yield this week. Higher rates make stocks less attractive compared to bonds and other fixed-income investments.

Stocks also got a boost from a stream of encouraging earnings reports. Chipcom, for example, led a rally in technology issues after reporting late Tuesday second-quarter net income of 54 cents a share, up from 24 cents a year ago and analysts' consensus forecast of 48 cents. The stock soared $7.25, to $46.75.

Besides Chipcom, Gleason Corp., Charles Schwab Corp., First Chicago Corp., Seagate Technology Inc., Hilton Hotels Corp., CBS Inc. and Computer Horizons Corp. all reported profits that matched or exceeded analysts' expectations.

"We are seeing that any stocks showing earnings ahead of expectations will be rewarded very nicely," said Chin Kim, who manages the Alpine Focus Fund, a $10 million hedge fund.

A rally in the dollar also buoyed stocks. A weak dollar discourages foreign investors from buying dollar-denominated assets because it adds an extra dimension of risk, currency losses. Also, as the dollar falls, prices of imports rise, raising concerns about inflation.

Trading was moderate, with 267 million shares changing hands by the close of the New York Stock Exchange.

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