Stocks climb on renewed optimism Dow up 17.80

August 30, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday for the third time in four days, buoyed by optimism that inflation is subdued and interest rates won't rise fast enough to damage corporate profits.

Weakness in Treasury bonds pared some of the gains late in the day, traders said, causing the Dow Jones industrial average to close just below 3,900.

L Chemical and paper producers were among the biggest gainers.

The Dow industrials closed up 17.80, at 3,898.85, after rising as high as 3,911.48, their highest level since Feb. 22, when the average closed at 3,911.66. Yesterday's advance extended last week's 3.35 percent rally, which marked the biggest one-week advance in the average since February 1993.

Stock investors were encouraged by Friday's Commerce Department report showing the economy grew at an annual rate of 3.8 percent in the second quarter, higher than the 3.7 percent pace first reported July 29 but below the 4.1 percent revision estimated by analysts, traders said.

The report eased concern that the Federal Reserve will have to raise interest rates for a sixth time this year to tame inflation, traders and analysts said.

The Standard & Poor's 500 index rose 0.79, to 474.59, its highest point since it closed at 480.71 on Feb. 3. The S&P 500 index climbed as high as 477.14, after soaring 5.72 on Friday, its biggest one-day advance since a 6.77-point leap on April 21.

The Nasdaq composite index lagged behind the other two measures, held back by a plunge in Nextel Communications Inc. and BMC Software Inc. Still, in its fifth straight advance, the Nasdaq index rose 0.27, to 763.21, its highest level since closing at 772.50 on March 28.

Twelve stocks rose for every nine that fell on the New York Stock Exchange. Trading was moderate, with about 266 million shares changing hands on the NYSE.

Friday's gross domestic product report reassured investors that interest rates won't surge, helping make potential returns from stocks competitive with those of fixed-income investments.

"People had gotten very bearish, and they were ready for some positive news," said Theresa Hammacher, managing director in charge of U.S. active equities for Bankers Trust New York Corp.

Stocks relinquished some of yesterday's gains as a surge in gold and oil prices sent Treasury bond yields higher by rekindling concern that inflation could accelerate, eroding the returns from fixed-income investments.

The yield on the benchmark 30 1/4 -year bond rose as high as 7.51 percent, up three basis points from late Friday, before settling at 7.49 percent.

"Commodity prices are scaring bonds a little," said Thomas Gallagher, head trader at Oppenheimer & Co. "If the Dow could have held above 3,900, it would have brought more buying in, but stocks were due for a rest."

Eastman Kodak Co., Union Carbide Corp. and McDonald's Corp. led the rise in the Dow industrials.

Kodak stock rallied $1.375, to $50.75, after the photographic film and copier maker agreed to sell its Sterling Winthrop health-care business to SmithKline Beecham PLC for $2.9 billion.

ITT Corp. slid $4.125, to $82, following the company's agreement to buy, jointly with Cablevision Systems Inc., Viacom Inc.'s Madison Square Garden arena for $1.075 billion in cash. Several analysts lowered their ratings of ITT stock after the agreement.

Union Carbide advanced $1.25, to $33.75, following positive comments by Greg Smith, an investment strategist at Prudential Securities Inc., in Barron's magazine. Citing chemical and paper companies' rosy earnings outlooks, he said he favors Dow Chemical Co. and Union Carbide. Dow Chemical jumped $2.25, to $73.875. The chemical company is exploring the sale of its 72 percent stake in Marion Merrell Dow Inc., a pharmaceutical company, whose shares gained $1.875, to $24.125.

Nextel, the most actively traded U.S. stock, plunged $5.25, to $25.25, on the termination of an agreement whereby MCI Communications Corp. would invest $1.3 billion for a 17 percent stake in the provider of telecommunications services.

Shares of Dial Page Inc., which agreed to merge with Nextel, skidded $4.25, to $25.50.

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