Dow climbs 70.90, hitting 5-month high as concerns about higher rates subside Stocks surge on favorable economic news

August 25, 1994|By New York Times News Service

NEW YORK -- Shaking itself out of a summerlong torpor, the stock market staged a remarkable rally yesterday as the Dow Jones industrial average surged 70.90 points, its second-biggest one-day gain this year.

Wall Street was divided on what the rally meant. Some analysts said it could signal that the stock market was ready to recover much of the losses that began after the Federal Reserve Board began raising short-term interest rates in early February. Other analysts said the rally would be short-lived, perhaps dying this week.

But one thing was clear: Wall Street was startled by the magnitude of the Dow's gain -- a jump of 1.88 percent, or six or seven times larger than recent daily gains. Most of the really came late in the day; the Dow was up 31 points at 2:30 p.m. but piled on another 40 points by the close, to 3,846.73.

The Dow surged so powerfully that the New York Stock Exchange activated its so-called circuit-breaker rules, intended to slow down high-speed computer-guided trading, a restraint more often used when the market plunges.

"Everybody started noticing that stocks were up and they weren't going down," said Christine A. Callies, a market analyst with Brown Bros. Harriman & Co., "So the big institutional investors decided, 'Hey, everybody into the pool.' "

In the last two days, the Dow has jumped nearly 100 points, shocking professional investors who had become accustomed to nearly stagnant market for even the largest and best-known stocks.

Stock indexes with more stocks in them, like the Standard & Poor's 500, have been moving up since the beginning of August. But it was the more closely watched Dow index of 30 blue-chip stocks, with well-known names including AT&T and Exxon, that seized Wall Street's attention.

Analysts agreed that a confluence of factors, some of them temporary, had fed the two-day rally. For example, bond prices have risen, the dollar has come out of its tailspin, making both stocks and bonds more valuable, and corporate earnings have been unexpectedly high.

Moreover, a government report on durable-goods orders suggested yesterday that economic growth might remain restrained, which means inflation could be less of a concern for investors.

That news also cheered bond investors. The yield on the benchmark 30 1/4 -year Treasury bond fell yesterday to 7.46 percent, down from 7.54 percent Tuesday.

The biggest temporary factor lifting the market might be a scramble by what are known as short-sellers to buy stocks. Recently, record numbers of stock traders borrowed shares waiting for share prices to fall or at least continue their stagnation.

If share prices fall, these short-sellers would make money when they actually pay for the borrowed shares at lower prices. Now, with share prices rising sharply, short-sellers must hurriedly buy back shares to stem their losses.

These short-sellers may be forced to buy back even more shares in coming days, but if this is the biggest factor behind the rise in prices, the rally will end soon, analysts said.

The Dow seemed to be stuck this summer in a listless trading range between 3,600 and 3,800. But yesterday's close of almost 3,847 marked the first time the blue-chip index had settled above 3,800 since June 16 and was the highest since March 16, when the Dow closed at 3,848.15.

Some analysts regarded the market action yesterday as an indirect referendum on the Clinton administration and especially its troubled health care program, which some on Wall Street regard as a large tax on the U.S. economy and, therefore, stocks.

The stalled crime bill, which has helped stall the health care bill, has cheered some business executives.

For the day, the broader Standard & Poor's 500 rose 4.52 points, to 469.03. The smaller-company Nasdaq composite index rose 3.74 points, to 751.72.

Volume on the New York Stock Exchange was above average at 310.5 million shares.

The New York Stock Exchange composite index rose 2.17 points to 258.61, with advancing stocks outnumbering declining issues TC 1,379 to 814. The American Stock Exchange market value index rose 1.70, to 447.98.

Of the 30 component stocks of the Dow industrials, 27 rose, led by International Paper Co., Caterpillar Inc. and General Motors Corp.

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