Stocks and bonds rallied Wednesday as a takeover battle over MCI Communications sparked a buying spree in telecommunications stocks and investors cheered downbeat economic data.
Although WorldCom's approximately $30-billion takeover bid for MCI filled the headlines, the figures in a monthly report on manufacturing showed more evidence of the moderate economic growth that is fueling continued strength in stocks.
The Dow Jones industrial average rose 70.24 points to 8,015.50, its first finish above 8,000 since Aug. 20. Gainers led decliners 2 to 1 on the New York Stock Exchange in heavy trading.
Several broad market indicators rose to record highs as bond interest rates approached their lowest level in more than 1 1/2 years.
The technology-heavy Nasdaq composite index also pulled higher before the close, after having been weighed down by the latest in a flurry of profit warnings from leading technology companies. The index closed up 4.61 points at 1,690.30 in the heaviest day of trading ever, with 970.4 million shares changing hands. That tops the previous record of 877.3 million, set July 16, 1996. WorldCom, the most active Nasdaq issue, slipped $1 to $34.38. Next-most-active was MCI, which soared $5.94 to $35.31.
Smaller-company shares extended their record-setting rally. The Russell 2,000 index of smaller companies rose 0.87 point to 454.69, achieving a record high for a third straight session and for the 20th time in 25 sessions.
News in the National Assn. of Purchasing Management's monthly report on manufacturing activity set off a rally in bonds and unleashed a torrent of buying across the board in stocks. The trade group reported that its index of manufacturing activity fell to 54.2 in September from 56.8 in August, an indication of only moderate economic expansion and a sign that the Federal Reserve Board may not be forced to raise interest rates any time soon, because the economy does not appear to be overheating.
"The market really liked what it saw when the NAPM numbers came out, and that helped lift spirits," said Charlie Crane, chief market strategist at Key Asset Management.
The yield on the 30-year Treasury bond--a key determinant of borrowing costs--fell as low as 6.30% before settling at 6.32%, down from Tuesday's 6.39%.
The yield hasn't ended a trading day at less than 6.30% since July 31, when it ended at 6.29%. That figure was its lowest finish since February 1996.
"The stock market is receiving encouragement from the idea that the long bond yield may approach 6% by year-end," Riley said. The power of lower interest rates has offset some of the concerns about company profits, he said.
Among Wednesday's highlights:
* The WorldCom bid set off a round of buying in telecommunications shares.
American depositary receipts of British Telecommunications, whose bid for MCI was bested by WorldCom, soared $5.38 to $72. GTE shares climbed $1.50 to $46.88, BellSouth climbed $1.13 to $47.38 and SBC Communications added 81 cents to $62.25.
Other telecom shares rose on speculation that they might be next in the takeover wave. Sprint gained $2.13 to $52.13, Teleport Communications Group jumped $3.75 to $48.63, Primus Telecommunications Group soared $2.63 to $12.63 and Winstar Communications rose $2.06 to $21.25.
MCI wasn't the only WorldCom target. Brooks Fiber Properties rallied $8 to $54.69 after WorldCom agreed to buy the local phone company for $2.9 billion.
Many investors remained focused on the prospects for third-quarter earnings. Stocks fell this week after Ascend Communications and Western Digital warned of disappointing profits. More companies joined that list Wednesday. Among them were Imation, down $2.31 to $24.25; computer circuit maker Hadco, off $4.41 to $49.75; TriQuint Semiconductor, plunging $8.44 to $28; and Advanced Micro Devices, slipping $5.56 to $27.
* Jones Apparel Group was an exception to the gloomy earnings outlook, projecting strong quarterly results. Its shares rose $2.63 to $56.63.
In currency trading, the dollar rose on fresh news of Japanese economic weakness and after a key German official said he was not worried by the dollar's current level.
The dollar rose to 120.90 Japanese yen in late New York trading, up from 120.50 on Tuesday, and to 1.7744 German marks from 1.7600.
Overseas, London's FTSE-100 closed up 1.39%, and Tokyo's Nikkei 225-share average closed down 0.25%.
Market Roundup, D8
The Money Market Funds chart that usually runs on Thursdays will instead run in Friday's editions.