Dow up 45.12 in late push Bond market may have peaked


NEW YORK -- Stocks surged broadly higher yesterday in a late rally said to reflect the belief of some money managers that the bond market's gains may have nearly run their course.

The Dow Jones industrial average jumped 45.12 points, or 1.3 percent, to 3,400.53, with Big Board gainers overwhelming losers by a 2-to-1 margin. Volume was a moderately heavy 275 million shares.

About two-thirds of the market's advance came in the session's last hour, in a pattern of program trading suggesting that some big institutions were committing hefty chunks of money to stocks.

Although the bond market was little changed yesterday, pension fund managers and consultants say that the lowest interest rates in decades, with reduced prospects for further price gains, are forcing many funds to switch increasingly to stocks.

Such moves by a few large funds, often taking place step-by-step over days or weeks, can sometimes result in jagged market reactions, like yesterday's, that have little apparent relation to the day's news.

Yesterday's economic reports -- that the government's main economic forecasting index was up only a hair and that sales of new homes posted their biggest drop in 11 years -- seemed to affect only those stocks most in need of a vigorous economy and strong housing demand.

Some analysts said that major institutions were shifting from bonds to stocks yesterday afternoon. "They are certainly leaving their footprints," said Dennis Jarrett, chief market analyst at Kidder, Peabody. "They are looking at total return."

Many pension funds have promised and assumed long-term returns of 8 percent or more, but the 30-year Treasury bond now yields only 6.84 percent.

"People are not willing to alter their assumptions, and are therefore seeking returns in other asset classes than bonds," said James J. O'Leary, senior executive vice president of Callan Associates, consultants to many large pension funds.

But some money managers caution that a reversal in the bond market could pull down stocks, which are already expensive by most historical measures.

But those who foresee no rise in interest rates say that the bond market's rally presages a much stronger advance in stocks. Elaine M. Garzarelli, an influential strategist at Shearson Lehman Brothers, told clients yesterday that the likely action of bond prices justifies a Dow average of 3,800. At yesterday's close, the Dow was 42 points from the record of 3,442 set Feb. 5.

Lower interest rates will both stimulate growth and make stocks more attractive, Ms. Garzarelli said. She also based her upbeat outlook on her conviction that President's Clinton's economic program will improve corporate profits this year. "The investment tax credit outweighs the new taxes," she said.

Yesterday's rally, though widespread, helped consumer growth stocks, steady earners in good times and bad, more than the cyclical issues that feel every bump in the economy.

Among the favorite consumer stocks, McDonald's rose $1.625, to $51.25; Coca-Cola gained 87.5 cents, to $43, and Philip Morris, beaten down lately by fears of higher tobacco taxes, gained $2.25, to $67.50, all on heavy trading.

RJR Nabisco, the Big Board's most active stock, rose 62.5 cents, bTC to $9, on plans to issue a new class of stock for its food holdings and to begin paying dividends.

The NASDAQ market's gains, proportional to the Big Board's, were concentrated in the popular computer technology issues that had paced the market for months but had faltered in recent days. Intel matched its high of $120 before closing at $119.50, up $4.25. Novell gained $1.25, to $29.75; Borland $1.125, to $21.50, and Sun Microsystems $1.50, to $36.

Most biotechnology issues also advanced. The NASDAQ composite index rose 8.21, or 1.23 percent, to 677.72.

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