U.S. stocks continue to gain on positive news about inflation

October 15, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks rose yesterday for a fifth time in six days, overcoming weakness in the dollar, as two government reports eased concern about accelerating inflation and higher interest rates.

"This week, optimism's winning," said David Zimansky, portfolio manager of the American National Income Fund, which has $118 million in assets. "I still have a fair amount of faith in [Federal Reserve Chairman Alan] Greenspan that he's trying to control this recovery without choking it off."

The Dow Jones industrial average seesawed earlier in the day, falling as much as much as 11.44, to 3,878.51, before closing up 20.52, to 3,910.47, its first close above 3,900 since Sept. 19. For the week, the benchmark average rose 113.04 points, or 3 percent. Through the first half of October, historically the worst month for stocks, the Dow industrials are up 67.3 points, or 1.8 percent.

Shares of Aluminum Co. of America, Union Carbide Corp. and International Business Machines Corp. helped fuel yesterday's gains. Shares of Alcoa surged $3.625, to $87, as aluminum prices jumped to a four-year high amid growing industrial demand and a scarcity of available supplies. Alcoa contributed nearly 10 points to the Dow industrials' gain.

Among broader market indexes, the Standard & Poor's 500 index also bounced back, gaining 1.31, to 469.10, after falling as much as 1.68. Rising telephone, oil, chemical and aluminum stocks led the index higher.

The S&P aluminum index, boosted by Alcoa and Reynolds Metals Co.'s $1.875 rise, to $58.125, rose 10.61, to 336.92, its highest in more than four years.

Declining stocks equaled advancers on the New York Stock Exchange, where about 252.7 million shares traded hands.

That's below Thursday's 338 million shares and the three-month daily average volume of 282 million.

A slumping dollar held stocks back at first, even though two different reports showed consumer prices rose moderately last month and U.S. industrial production was unchanged.

The U.S. currency fell to a three-month low against the German mark, weakening to 1.5195 from 1.5283 marks, and slipped to 98.20 yen from 99.35 yen, amid concern that the Fed is behind the curve in controlling inflation.

When inflation accelerates, it erodes the value of fixed-income .. securities. That, in turn, spurs foreign investors to sell U.S. assets like stocks and bonds, flooding the market with dollars.

"There's skepticism about dollar assets," said Michael Metz, chief investment strategist at Oppenheimer & Co., and that skepticism offset the encouraging reports on inflation. Concern about the dollar dissipated, though, and optimism about inflation took over. The Labor Department yesterday said that the prices Americans pay for goods and services rose a modest 0.2 percent in September. The increase was in line with analysts' expectations. On Thursday, the government said wholesale prices, according to its producer price index, fell more than expected.

And the Fed reported industrial production was unchanged in September -- ending a string of 15 consecutive monthly increases. Factories, mines and utilities operated at 84.6 percent of capacity last month, down from a revised 84.8 percent in August.

The Nasdaq combined composite index also rebounded, although not as much. After falling as much as 3.16, to 764.73, it erased most of the deficit, closing at 767.08, down 0.81. The index had been up five straight sessions before yesterday's drop. Microsoft Corp., American Power Conversion Corp., Intel Corp. and U S Healthcare Inc. fell the most.

Shares of Microsoft fell $1.3125, to 55.9375, after the software company said it would buy Intuit Inc. in a $1.5 billion stock transaction. While the alliance would extend Microsoft's reach in personal-finance software, analysts said it may have been a bit expensive and could dilute Microsoft's earnings.

Shares of Texas Instruments Inc. rose $1.25, to $68.625, after the semiconductor maker said third-quarter earnings rose 27 percent.

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