NEW YORK — Stock prices rallied Tuesday on the strength of declining interest rates and rising oil company shares.
The Dow Jones index of 30 industrials, which declined 20.49 points Monday, finished up 14.99 at 2,526.37.
Advancing issues outpaced decliners by about 9 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 916 up, 546 down and 504 unchanged.
Big Board volume totaled 171.09 million shares, up from 143.60 million Monday.
The market was lifted by strength in blue chip stocks and some program-related buying, traders said.
Blue chips climbed steadily through the afternoon, but late profit taking erased some of the day's advance, which had brought the Dow near its post-crash high.
Declining interest rates in the bond market--where prices rose by $9.70 per $1,000 in face value on the benchmark 30-year Treasury bond--helped propel stocks higher, analysts said. Lower interest rates improve the outlook for corporate profits.
"We're back to the same old lock-step environment," said Peter Barry, director of research at Fahnestock & Co. "The dollar--the flight to safety worldwide--is taking bonds up and lower interest rates are taking stocks up."
The stock market advanced last week to new post-crash highs amid gathering signs of a slowing economy, which were seen as indicators that inflation and would not accelerate and interest rates would be stable or lower.
Analysts said the market also received a boost from the strength of key blue chip stocks, especially IBM, which rose 2 1/4 to 114 1/4 as the most actively traded stock. Digital Equipment, another key technology issue, rose 3 5/8 to 95 1/4.
Analysts said the gains also reflected how large institutional investors were attempting to complete their second-quarter trading before the July 4 holiday weekend to prepare midyear portfolio reports for clients.
Oil company stocks rose broadly because of a rise in crude oil prices, traders said.
Chevron gained 2 1/2 to 55 3/8, Atlantic Richfield rose 1 1/4 to 94 5/8, Amoco increased 1 1/2 to 46 1/4, Mobil gained 1 7/8 to 51 3/8 and Texaco was up 1 1/4 to 50 7/8.
Tokyo stock prices tumbled Tuesday, closing sharply lower after computerized selling programs put downward pressure on a broad range of sectors. The 225-share Nikkei index fell 156.61 to close at 33,469.21.
Share prices ended sharply higher on the London Stock Exchange as fears of a rise in British interest rates were soothed by a surprising narrowing of the British trade deficit in May. The Financial Times 100-share index finished at 2,206.4, up 26.8.
U.S. Treasury bond yields fell to two-year lows Tuesday on sentiment that the economy is slowing and interest rates are declining.
The Treasury's bellwether 30-year bond surged 31/32 point, or $9.70 for every $1,000 in face value. Its yield tumbled to 8.07% from 8.15% late Monday.
Analysts said it was the lowest yield since early April, 1987.
"Yields pierced 8% on the upside (then), and we never saw it again," said Jay Goldinger, market analyst at the investment firm Capital Insight in Beverly Hills.
Analysts said the rally in bonds was fueled by a growing belief that the economy is slowing, even though there was no fresh news on the economy Tuesday.
Gary Schlossberg, vice president and senior economist with Wells Fargo & Co., said bond investors, rather than buyers of short-term bills and notes, are playing the lead role in pushing rates down.
The federal funds rate, the interest on overnight loans between banks, was quoted at 9.438%, down from 9.50% late Monday.
Prices of wheat futures bounded to a six-week high on the Chicago Board of Trade in anticipation of further buying of U.S. wheat by the Soviet Union, which apparently is strapped for supplies.
On other markets, livestock and meat futures were mostly lower while oil and precious metals futures were mixed.
Wheat settled 0.50 cent to 10.75 cents higher, with the contract for delivery in July at $4.125 a bushel; corn was 3.75 to 5 cents higher, with July at $2.6275 a bushel; oats were 4.75 to 5.50 cents higher, with July at $1.535 a bushel, and soybeans were 8 to 13 cents higher, with July at $7.385 a bushel.
The rally pushed wheat futures to their highest level since May 15 and erased most of Monday's steep losses in the corn, soybean and oat markets.
Unlike the other grain markets, wheat futures had risen Monday on rumors the Soviets had bought up to 500,000 metric tons of U.S. wheat at market prices, an indication they had an immediate need for the grain.
The dollar drifted lower against all major currencies except the Japanese yen in thin, choppy trading.
Gold prices rose. Republic National Bank of New York quoted an ounce of gold at $375.25 as of 4 p.m. EDT, up $1.25 from late Monday.
Currency dealers said that sentiment toward the dollar remains bullish but that many traders were reluctant to buy the currency before the Independence Day holiday and in the absence of any market-moving news.
The dollar came under pressure abroad Tuesday on a report that the West German Bundesbank might consider an interest rate hike at a meeting Thursday of its central bank council.
The battered British pound, meanwhile, gained ground against the dollar, helped by a surprising narrowing in the British trade deficit in May and news that Prime Minister Margaret Thatcher agreed with other European leaders on plans toward monetary union.
At least two rounds of intervention by the Bank of England also encouraged the pound's recovery.
In London, the pound cost $1.5640, more expensive than $1.5450 late Monday. Sterling bought $1.5660 later in New York, up from $1.5450.
In Tokyo, where trading ends before Europe's business day begins, the dollar rose 1.05 yen to a closing 141.23 yen. It was quoted lower at 141.07 yen in London and at 141.75 yen in New York, up from 141.10 yen late Monday.