Stocks hit highs for second day in a row Financial issues rally on optimism that Fed will cut interest rates


NEW YORK -- U.S. stocks rose to highs for a second day yesterday as financial issues rallied on optimism the Federal Reserve will lower interest rates by the end of the year.

The Dow Jones industrial average surged 46.61, to 4,969.36, its second consecutive high and its fifth in six sessions. Wednesday, the 30-stock average broke through the 4,900 mark for the first time.

Reports of merger talks between Boeing Co. and McDonnell Douglas Corp. and bond yields' slide to a 21-month low fueled the rally. Investors bet that President Clinton will resolve a budget deadlock with Congress, even as the two sides show no signs of coming to an agreement.

Minnesota Mining & Manufacturing Co., J.P. Morgan & Co., United Technologies Inc. and Boeing were the biggest advancers in the Dow industrials. All except J.P. Morgan closed at record highs.

The Standard & Poor's 500 index also rallied to a second straight record. The index, which represents almost 75 percent of the overall market's capitalization, rose 3.38, or 0.6 percent, to 597.34. Oil, electrical equipment and bank issues contributed most to the advance.

The S&P 500 is up 30 percent year to date, its biggest advance in a single year since 1975, when it gained almost 32 percent.

A round of computer-guided buy orders helped boost both indexes earlier, according to Birinyi Associates Inc.

The Nasdaq composite index, which contains benchmark tech companies Microsoft Corp. and Intel Corp. among others, climbed 2.63, to 1,044.48. The index last set a high at 1,067.40 on Sept. 13. Cisco Systems Inc., MCI Communications Corp. and Sun Microsystems Inc. led the advance.

The Russell 2000 index of small companies jumped 1.34 to 302.8, snapping two days of declines. The American Stock Exchange market value index strengthened 2.24, to 529.46, and the Wilshire 5000 set its second straight record, rising 33.75, to 5,881.14.

Stocks staged their broadest rally in two weeks. Some 1,535 shares rose and 809 shares fell on the New York Stock Exchange.

And it was the heaviest trading volume in three weeks. About 423.38 million shares changed hands, compared with 464 million on Oct. 26. Some 373 million shares traded Wednesday.

The prospect of lower rates boosted shares of banks and brokerage houses, whose profits swell when borrowing costs shift. The S&P Money Center Bank Index has surged 50 percent this year, spurred by investor conviction that interest rates will move lower. Yesterday, the index jumped 2 percent, to 223.28.

Among the financial issues that gained, Citicorp's shares added $1.75, to reach $67.25; BankAmerica Corp. shares rose $1.125, to $60.50; J.P. Morgan's stock gained $2.125, to $77.75; and Merrill Lynch & Co.'s stock jumped $2.25, to $59.

Investors grew optimistic that rates would move lower as the yield on the 30-year benchmark bond fell 7 basis points to 6.22. Bonds rallied after President Clinton canceled a trip to Japan, boosting expectations for a speedy resolution to the budget deadlock with Congress.

Now, investors say they are convinced the Dow industrials will surge to 5,000 this year, chalking up more than a 1,000-point gain in a year. Given the pace of the average's ascent this week, the Dow could hit the mark today.

The more than five-year-long advance in stock prices is the longest since the early-to-middle years of the Reagan administration. Boeing and McDonnell Douglas gained on reports they are discussing an exchange of assets or a merger that would create the world's largest aerospace company, according to two people familiar with the talks. A merger -- still far from certain and subject to antitrust scrutiny -- would create a company with $35 billion in sales.

Boeing shares jumped $1.875, to $75.875 and McDonnell Douglas climbed $4.375, to $90.625.

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