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FINANCIAL MARKETS

Dow Up 52 to Record; Yields Slip

February 07, 1996|From Times Staff and Wire Reports

A broadening rally on Wall Street lifted stocks to new highs Tuesday as bond yields continued to ease.

The Dow industrials soared 52.02 points, or nearly 1%, to a record 5,459.61. For a second day, fresh interest in technology stocks powered the Nasdaq composite index to a record, up 5.74 points to 1,089.08.

"We're watching this market with wonderment rather than nervousness," said Arthur Cashin, a managing director of New York Stock Exchange floor operations for PaineWebber. "We're in awe."

Traders say that institutions, including mutual funds, remain heavy with cash from recent investor contributions and that there is increasing impatience to get the money into the surging market.

On the NYSE, 1,404 stocks rose while 968 fell, with tech, transportation, food and financial issues leading the way. Trading was heavy.

Many traders breathed easier Tuesday as the Treasury launched the first stage of its quarterly refinancing, which will raise $44.5 billion. The Treasury's auction of new three-year notes went better than expected, with strong demand pushing the average yield down to 5.043%, the lowest in two years.

"It's a bullish environment" for bonds, said Patrick Dimick, an analyst at CS First Boston. "The [Federal Reserve Board] is worried about the state of the economy."

The central bank eased short-term interest rates last week for the third time since July.

Longer-term bond yields, which had jumped late last week on concerns that the Fed is laying the groundwork for an economic boom later this year--with potentially higher inflation--continued to retreat Tuesday. The 30-year T-bond yield slipped to 6.13% from 6.15% on Monday.

The bond market faces more tests today and Thursday, as the Treasury sells new 10- and 30-year securities, respectively.

Some Wall Streeters also think the stock market could be tested soon. Merrill Lynch & Co.'s chief investment strategist, Charles Clough Jr., lowered his recommended asset allocation for stocks to 45% from 50%, while raising bonds from 45% to 50% and keeping cash at 5%.

Despite stronger-than-expected fourth-quarter profits at many companies, "stocks will have to deal with increasing earnings disappointments," Clough warned. He said the economy "is nearing recession conditions," which will soon be manifested in weak sales and earnings.

Among Tuesday's highlights:

* Buyers returned to many technology issues, which some traders said reflected investors' search for companies more likely to show continuing earnings gains.

IBM rose 2 1/2 to 114 3/4, its highest level since early 1991. Other tech winners included Intel, up 1 to 59 1/2; Micron Technology, up 4 1/4 to 41 7/8; Motorola, up 1 1/8 to 59; Alantec, up 4 1/4 to 63; and Spyglass, up 1 1/2 to 38.

Also, Xerox rebounded 5 1/8 to 130 7/8 after announcing plans to buy back up to $1 billion of its stock, or about 7% of outstanding shares.

But Broderbund tumbled 7 1/8 to 46 after the educational software company warned of disappointing sales and earnings trends in the current quarter. "There is a ton of products out there and there's a competitive issue," said Michael Wallace, analyst at UBS Securities.

* Among other companies responding to earnings reports, PepsiCo rose 3/4 to 60 7/8 and Oxford Health soared 11 3/8 to 76 3/8. But garbage hauler WMX Technologies lost 1 1/8 to 28 7/8.

* Transportation stocks, which have lagged industrial stocks lately, roared back to life. The Dow transportation index zoomed 36.59 points, or 1.9%, to 1,991.75.

* Engelhard plunged 3 to 21 1/8. It said its PremAir smog-eating catalysts for cars need significant work to become viable.

In currency trading, the dollar edged higher after tumbling Monday. Gold fell again: Comex February futures lost $1 to $412 an ounce.

In foreign trading, European stocks were up marginally after heavy profit taking Monday.

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