NEW YORK -- U.S. stocks rose yesterday as a report showing a drop in producer prices boosted optimism that the Federal Reserve won't raise interest rates next week.
The Dow Jones industrial average rose 11.95 to 7,286.16, after touching a record 7,350.86 earlier in the session.
"The inflation numbers out today were very good, and it decreases pressure on the Federal Reserve to do anything," said Jim Benning, a trader at BT Brokerage in New York.
Banks such as NationsBank Corp., Citicorp and J. P. Morgan & Co., whose profit margins widen when interest rates decline, paced the gainers.
Some investors said the jury is still out on whether the Federal Reserve will raise overnight bank lending interest rates Tuesday or in July. Either way, the price report signaled inflation is under control and that the economy would continue to grow steadily.
"The economy will slow down, inflation will not get out of control. That's the kind of environment that supports higher" stock valuations, said Alan Sachtleben, head of equity strategy at Van Kampen American Capital.
The Standard & Poor's 500 index rose 2.91 to 836.04. The Nasdaq composite index rose 1.96 to 1,335.55. Intel Corp. slid, then recovered to rise 37.5 cents to $152.75 after it was sued by a second computer chip maker in as many days for allegedly using patented designs in its Pentium chip.
On the broader market, the Russell 2,000 index of small capitalization stocks gained 0.92 to 364.48; the Wilshire 5,000 index, comprising stocks on the New York, American and Nasdaq exchanges, spurted 25.35 to 7,874.56; the American Stock Exchange composite index climbed 2.37 to 581.97; and the S&P midcap index added 0.92 to 269.83.
Advancing shares outnumbered those that declined 7-to-5.
Among rising bank shares, J. P. Morgan gained $2.375 to $104.375, NationsBank jumped $1.25 to $61.75 and Citicorp surged $2.50 to $120.625. Merrill Lynch & Co. rose $1.625 to $101.50.
"The banks and the brokers always do well in a steady or declining rate environment," said Benning.
Northern States Power Co. jumped after the Federal Energy Regulatory Commission rejected its plan to merge with Wisconsin Energy Corp., telling the two companies to sell more plants if they want the agreement approved.
Northern States rose $1.75 to $48, as investors speculated it would have a brighter future as a stand-alone utility than Wisconsin Energy, which fell 50 cents to $24.25.
An initial offering electrified investors, something of a rarity on Wall Street this year. Rambus Inc., which makes technology for speeding up computer chips, soared $18.25 to $30.25. The company sold 2.75 million shares at $12 each, for $33 million.
Shares of International Family Entertainment, which is controlled by television evangelist Pat Robertson, rose $1.25 to $22.75. News Corp. is in talks to buy the company, said a person close to News Corp. Chairman Rubert Murdoch.
Baan Co., a Dutch maker of software for network computers sank after Merrill Lynch & Co. cut its investment opinion on the shares to "neutral" from "accumulate." Shares fell $4.875 to $55.625. The company said it would buy Aurum Software Inc. for $250 million in stock or $21 a share. Aurum rose $1.875 to $19.
Andrew Corp. shares rose $2.25 to $25.875 after the telecommunications equipment company said it will repurchase as many as 5 million shares, or about 5 percent of the shares outstanding.
The Dow industrials have risen 14 percent, or almost 900 points, since April 11, coinciding with a rally in bonds. Yesterday, the yield on the 30-year Treasury bond, which moves opposite to the price, fell 4 basis points to 6.88 percent. Lower yields benefit stocks by reducing companies' borrowing costs, fueling expansion and profit growth.
Pub Date: 5/15/97