Stocks posted strong gains Thursday, led by economically sensitive issues, as worries about higher interest rates receded.
The rate outlook was helped by a report from the Federal Reserve Bank of Philadelphia saying that area manufacturing growth declined in December. The survey also shows a decline in prices paid and received and in new orders and shipments.
The report led to a drop in yields on short-term Treasury securities, though the 30-year bond edged up from 7.86% on Wednesday to 7.87%.
Earlier this week, data showed modest increases in wholesale and consumer prices. Taken together, the reports encouraged investors to conclude that the Fed will not raise interest rates at its policy meeting Tuesday, especially in the wake of its 0.75 percentage point increase last month.
"The Fed moved very heavily in November; they'll probably lay off next Tuesday," said Larry Wachtel, market analyst at Prudential Securities.
The Dow Jones industrial average rose 19.18 points to 3,765.47, its highest level since before Thanksgiving.
Advancing issues led decliners by nearly 13 to 7 on the New York Stock Exchange. Big Board volume was strong at 332.79 million shares.
The Dow outperformed broad market indexes as cyclical stocks, which are well represented in the industrial average, led the market higher. The 30 Dow components were led by International Paper, up 2 1/4 to 74 3/4; Alcoa, up 1 3/4 to 81 5/8; United Technologies, up 1 1/2 to 61; Caterpillar, up 1 to 53 3/8, and Bethlehem Steel, up 7/8 to 19.
Market indexes were pushed higher by several waves of computerized buy programs tied to today's double expiration of options and futures. Traders and analysts also said the market was bouncing back from last week's selloff, which took 54 points off the Dow.
"There's a tremendous amount of program buying," said Jon Groveman, president of Ladenburgh, Thalmann & Co. "You're getting a year-end oversold rally, and the expiration is fanning it."
Among the market highlights:
* Technology stocks boosted broad market indexes after 3Com, a computer networking company, released a strong second-quarter earnings report. 3Com added 6 1/4 to 48 3/8 in heavy Nasdaq trading. The news sparked some ratings upgrades and a general rise in networking and technical stocks. Companies have found connecting computers to be productive and are buying them at a fast clip, startling analysts. Stocks of other network device companies also rose: San Jose-based Alantec jumped 21% and Milpitas, Calif.-based Network Peripherals surged 12%. Cisco Systems, Cabletron, Bay Networks and Chipcom all jumped several percentage points.
* Sprint fell 3 7/8 to 26 7/8 on the Big Board. The long-distance telephone carrier told analysts that its fourth-quarter results will probably fall well below expectations.
Overseas stock markets were mixed. Tokyo's Nikkei average rose 1% and Frankfurt's DAX index finished up 1.4%. But the FTSE 100 index in London fell 0.24%.
The Mexican peso fell to a record low against the dollar as concerns about the Chiapas rebellion weakened financial markets and Mexicans bought the U.S. currency for Christmas travel and shopping. In Mexico City, the dollar was quoted in late trading at 3.4625 pesos, up from 3.4565 on Wednesday. Mexico's Bolsa stock index fell 0.95%.
Oil prices fell to three-month lows as moderate weather eased energy demand, but prices of several other industrial commodities rallied based on demand or export prospects, analysts said. January crude oil closed 26 cents lower at $16.73 a barrel, near last week's eight-month low of $16.42.
Market Roundup, D6
Dow Jones Industrials High: 3,794.07 Close: 3,765.47 Low: 3,729.13
New York Volume: 337.08 million shares
Interest Rates 30-year T-Bond: 7.87% 1-year T-Bill: 7.07%