Fueled by bond rally, Dow rebounds 14.59 points


NEW YORK -- Following a rising Treasury bond market, the Dow Jones industrial average rose 14.59 points yesterday, to close at 3,246.81, in moderate trading.

Bond prices rose and yields fell on a combination of factors -- a weak report on U.S. durable-goods orders in July, stability in the dollar for the first time in three sessions and strong demand at a Treasury auction of five-year notes.

Traders said the stock market, which was eager to celebrate the dollar's newfound stability and a smooth Treasury auction, was helped by technical factors, too. The market was seen as oversold in the short term after the Dow had fallen 101 points in the past four sessions.

Market sentiment has grown more cautious in the last three sessions. That suggests that most investors who were prone to cutting their exposure to equities have already done so, leaving the near-term market in the hands of bulls.

But analysts said the equity rally was restrained by the same disappointing numbers from the Commerce Department that sent bond prices higher.

July durable-goods orders fell 3.4 percent, surprising economists, who had expected an increase of about 0.3 percent.

"The best interpretation you can make from these numbers is that the economy is standing still," said Daniel Seto, an economist at Nikko Securities. "It's true that aircraft and auto orders dragged down the overall reading. But it's also true that backlogs continued to erode, and that's a bad sign."

The battered U.S. dollar, rallying off support at 1.40 German marks in the early hours, received another boost after President Bush announced that the United States and allied forces would "act decisively" to keep Iraqi aircraft out of airspace in southern Iraq, beginning today.

Modest strength in the dollar, up nearly half a pfennig against the mark as stocks closed, helped support both stocks and bonds.

At the close, the Dow stood at 3,246.81, up 14.59, while advances outpaced declines on the Big Board by about a 10-to-7 ratio.

But skeptics noted that advances occurred while volume fell to a moderate 171 million shares, from an active 201 million on Tuesday, when market indexes finished mixed and more stocks fell than rose.

Now that the Dow has moved within striking distance of its April lows, some traders said the market might benefit soon from the subsequent rise in cautiousness.

In recent weeks, institutional cash reserves have been rising, and NYSE and NASDAQ short interest have risen to new record highs. Also, during Friday's 50-point decline in the Dow, there were more sell options than buy options traded on the Chicago Board Options Exchange -- a good sign of pessimism.

Among Dow components, Philip Morris rose 7/8 , to 80 5/8 , after it raised its quarterly dividend to 65 cents a share, from 52.5 cents.

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