NEW YORK — The bulls were loose on Wall Street again Tuesday, driving the market to another record high amid expectations of lower interest rates and a strengthened U.S. economy.
The Dow Jones industrial average closed at 1678.78, up 14.33 from Friday's close. There was no trading Monday because of the holiday.
"A lot of extraordinary trends were motivating the market, which seems to hear no ill news," said Eugene Peroni, an analyst with the Los Angeles-based securities firm of Bateman Eichler, Hill Richards. "It seems to be responding to the same old adage that lower interest rates lead to high stock prices."
He said falling oil prices are encouraging a belief that the Federal Reserve Board will cut the discount rate, which has stood at 7.5% since last May.
"There seems to be a further need for lower interest rates," he said. "Corporate earnings are not keeping pace with this market," while the economy has not been growing with as much vigor as it could.
Because lower oil prices would discourage the lower interest rates from rekindling inflation, "this could bring another round of . . . moves by the Fed to stimulate the economy," Peroni said.
David Jones of the New York securities firm of Aubrey G. Langston & Co. said that another incentive for the Fed to cut interest rates is that "this would be a perfect time . . . to help some of the intensifying debt problems coming in the wake of easing oil prices."
The trading day began amid what Jones and other analysts called some profit taking, with the Dow Jones industrial average dipping nearly 10 points before rebounding by the end of the morning. Last Friday, the index 19.38 points to the previous record high of 1664.45.
Jack Conlon, an analyst at E. F. Hutton, said: "Short sellers were part of the market's strength, selling early in the morning, then coming back (to buy) in the afternoon." In a short sale, an investor sells borrowed stock in the hopes that its price will fall before payment is due.
Large blocks of 10,000 or more shares traded on the NYSE totaled 3,036, compared to 3,116 on Friday.
Big Board volume totaled 160.2 million shares, against 155.59 million on Friday.
The NYSE's composite index was 128.10, up 1.45.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 189.744 million shares.
Standard & Poor's index of 400 industrials rose 2.68 to 244.89, and S&P's 500-stock composite index was up 2.69 to 222.45.
The Wilshire index of 5,000 equities closed at 2,287.664, up 22.661.
At the American Stock Exchange, the market-value index was 247.06, up 1.98.
The NASDAQ composite index for the over-the-counter market closed at 352.36, up 2.15.
Among the most-active issues, Johnson & Johnson, which announced Monday that it was suspending use of capsules following the latest Tylenol poisoning, was up 1 3/8 at 49 1/8. Other drug issues were Merck, which rose 3 to 147, and Upjohn, which rose 3 5/8 to 143 1/2. The company declared a 2-for-1 stock split.
Texaco was up 1 1/8 at 29 7/8, Exxon was up 1/8 at 52 and Phillips Petroleum rose 1/8 to 9 5/8.
IBM led computer issues at 158 7/8, up 2 5/8, while Honeywell, which said it would buy back 5 million of its outstanding shares, was up 3 3/4 at 83 1/8 and Data General was up 1 5/8 at 46 5/8.
Financial Corp. of America was the fourth most-active issue on the NYSE, up 2 at 14 7/8.
Utilities were stronger. Pacific Telephone was up 3 1/8 to 89, Nynex was up 2 to 105 and Ameritech was up 1 1/2 to 112 3/4.
Long-term government bond prices gained, extending last week's rally, while prices on shorter maturities posted more moderate increases. Prices of corporate and municipal issues also rose.
Benchmark Bond Up
The Treasury's benchmark 30-year bond rose 1/2 point, or $5 for each $1,000 in face amount. The yield on the bond fell to 8.9% from 8.95% late Friday.
The credit markets have benefited from the weakness in oil prices, which has made the inflation outlook more favorable and laid the basis for further interest-rate declines, analysts say. Bond prices generally move in the opposite direction of inflation and interest rates.
Analysts said traders are awaiting Fed Chairman Paul A. Volcker's testimony to Congress today. Volcker will disclose the central bank's 1986 monetary policy goals established at the Federal Open Market Committee meeting last week.