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Dow Surges 32.48 in Rally Fueled by Interest Rate Dip

August 27, 1986|From Times Wire Services

NEW YORK — The stock market surged higher on Tuesday, posting its best day in more than a month as prices surged in response to falling interest rates and computerized buying programs.

The Dow Jones average of 30 industrials rose 32.48 to 1,904.25, the biggest one-day gain in the index since a 36.06-point rise on June 13.

The gain also gave the average its highest close since the record 1,909.03 on July 2.

Advances were spread throughout the market, with several broad market indicators closing at new highs. Gainers outpaced losers by more than two to one in heavy trading on the New York Stock Exchange.

Although computerized program trading linked to stock index futures was credited for some of Tuesday's gains, analysts also said declining interest rates attracted buyers.

Long-term interest rates edged lower in the bond markets, and the nation's biggest banks cut their prime lending rate by half a percentage point to 7 1/2%.

The prime rate reduction matched the Federal Reserve Board's discount rate cut of last week, which was seen as a continuation of an easy credit policy aimed at sparking the U.S. economy.

"I think market participants now have a little more confidence that an economic upturn is now upon us," said Michael Metz of Oppenheimer & Co.

While some analysts maintained that Tuesday's gains were an extension of a technical rally from the lows reached during a July selloff, others noted that recent market declines reflected profit-taking activity rather than heavy selling pressure.

Oil stocks rose strongly on reports that Norway was considering whether to cooperate with the Organization of Petroleum Exporting Countries in limiting output to shore up crude prices. While low oil prices can help stimulate the economy, they have contributed to an economic depression in the nation's Oil Patch region and energy industry.

Among energy-related issues, Mobil rose 1 3/8 to 36 7/8, Amoco rose 2 3/8 to 66 7/8, Atlantic Richfield climbed 1 3/4 to 57 3/8, Exxon rose 2 5/8 to 68, Chevron rose 1 3/4 to 44 1/8, Schlumberger rose 1 1/8 to 33 5/8 and Halliburton rose 7/8 to 22.

Money center banks were mostly higher. Chase Manhattan was up 1/2 to 42 7/8, Citicorp 1 1/8 to 56 5/8, Manufacturers Hanover climbed 1/2 to 46 1/2 and J. P. Morgan rose 2 1/8 to 94.

Duquesne Light fell to 14 5/8 on volume of 8.57 million shares, making it the most actively traded NYSE issue. The utility pays its next regular dividend to shareholders of record Sept. 3.

Eastern Airlines fell 3/8 to 8 5/8 in heavy NYSE trading and Texas Air fell 1 1/2 to 29 in American Stock Exchange trading. The Transportation Department ruled against a merger of the two airlines.

Retailers rose. Federated Department Stores was up 3 1/8 to 85, K mart gained 3/4 to 53, J. C. Penney rose 1 1/2 to 77 5/8 and Sears, Roebuck rose 5/8 to 46 1/2.

Among actively traded blue chips, IBM was up 2 1/8 to 141 1/8, AT&T rose 3/4 to 24, Eastman Kodak rose 3/4 to 57 3/8 and Navistar was up 5/8 at 8.

Big Board volume totaled 156.64 million shares, against 104.35 million on Monday.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,890, compared to 1,979 on Monday.

Bond prices rose and short-term interest rates were generally lower.

Some dealers said speculation that the Federal Reserve Board may cut its discount rate for the fifth time this year helped keep prices up and yields down.

The discount rate, or the interest the Fed charges financial institutions, was trimmed to 5.5% from 6% last week, the fourth such cut this year. The reduction was largely seen as a desire on the part of the Fed to ease overall credit restrictions to stimulate the sluggish economy. Lower interest rates make bond prices rise.

In the secondary market for Treasury bonds, prices of short-term governments rose 3/32 point, intermediate maturities rose and long-term issues were up as much as 11/16 point.

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