Confidence lifts Dow 18.45 points

August 31, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks jumped yesterday for the fourth time in five sessions on renewed optimism that economic growth will be strong enough to keep corporate profits rising, and that interest rates will stay steady.

Prices got a boost on the announcement by Lockheed Corp. and Martin Marietta Corp. that they agreed to merge in a $10 billion stock swap, creating the country's largest defense contractor. That fueled speculation about other acquisitions in the defense, food, drug and financial industries, traders and analysts said.

"Inflation is in check, you have strong enough growth, and as long as rates are going to remain the same, that's good for the market," said Anthony Conroy, managing director for equities at Mabon Securities Corp.

The Dow Jones industrial average rose 18.45, to 3,917.30, extending its advance since Aug. 22 to 166.08 points, or 4.43 percent. Gains in Bethlehem Steel Corp., Aluminum Co. of America and International Paper Co. drove the average to its highest close since Feb. 17 and its first close above 3,900 since Feb. 22.

Among broader market indexes, the Standard & Poor's 500 index added 1.50, to 476.09, lifted by defense, paper, semiconductor, software and health care companies. The Nasdaq combined composite index advanced 3.25, to 766.46, helped by rising prices for Microsoft Corp., Intel Corp., MCI Communications Corp., DSC Communications Corp. and Applied Materials Inc.

More than three stocks rose for every two that fell on the New York Stock Exchange, where trading grew to 294.5 million shares from 266.2 million Monday.

"Everybody now says modest inflation and moderate economic growth" are in store, said Mabon's Mr. Conroy. "That's an awesome scenario" pointing to higher share prices, he said.

Defense stocks surged as investors bet that smaller military budgets will result in more consolidation in the industry.

Lockheed surged $10.75, to $76.75, and Martin Marietta added 50 cents, to $48.625. Among other Pentagon contractors, McDonnell Douglas Corp. climbed $1.375, to $118.875; E-Systems Inc. added $1.625, to $42.50; and Loral Corp. climbed 75 cents, to $41.125.

Rockwell International Corp. rose $1, to $36.125; Raytheon Co. climbed $1.50, to $67.50; and Northrop Grumman Corp. vaulted $1.375, to $44.

Standard & Poor's aerospace/defense stock index spurted 13.28, to 575.22, its highest level since June 17.

Rising merger and acquisition activity, coupled with the economy's strength, creates a favorable background for stock prices, some analysts said.

Also yesterday, General Signal Corp. agreed to buy Reliance Electric

Co. in an exchange of stock worth about $1.4 billion. Reliance soared $5.125, to $25, and General dropped $1.75, to $35.50.

Recent acquisitions have also buoyed share prices of drug, financial service and food stocks, said Julian Carlin, equity portfolio manager at IAI Funds in Minneapolis. On Monday, Ivax Corp. agreed to buy rival generic drug maker Zenith Laboratories Inc. for about $600 million in stock.

Speculation about takeovers "is driving a lot of these areas," said Mr. Carlin. One of his favorite takeover targets is Scimed Life Systems Inc., a maker of medical supplies whose stock has climbed to $37 from $25 at the end of June.

Warner-Lambert Co. jumped $4.875, to $86, yesterday, and U.S. Surgical Corp. rose $1.25, to $25.875, amid takeover speculation, traders said.

Stocks got a further boost from rising bond prices. Yields on the benchmark 30 1/4 -year Treasury bond fell to 7.46 percent from 7.49 percent Monday after the Conference Board said consumer confidence slipped in August to 89 from a revised 91.3 in July.

Paper stocks climbed for a third day, and chemical companies rose for a sixth as investors anticipated growing demand and limited supplies translating into higher prices.

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