NEW YORK -- U.S. stocks closed higher for a second consecutive session amid optimism that a fragile economic recovery would dissuade the Federal Reserve from raising interest rates anytime soon.
The perception that rates would stay low was fueled by weak consumer confidence and home resales reports, traders said. Fed members voted last week to lean toward raising rates to battle inflation.
The Dow Jones industrial average climbed 8.85, to 3,516.63, approaching its record close of 3,523.28, set Thursday. Gains in American Telephone & Telegraph Co. and International Paper Co. offset a drop in United Technologies Corp.
Broader market gauges also closed higher. Standard & Poor's 500 Index rose 0.85, to 448.85. The Nasdaq Combined Composite Index added 0.35, to 695.04, bucking a plunge in Dell Computer Corp.
"The stock market is going to follow interest rates because that's about the only thing people can focus on," said Barry Berman, head trader at Robert W. Baird. "Anything to do with the [Clinton] administration or the economy is fuzzy."
Dell slumped as much as 31 percent, to as low as $22.125, before closing at $24.75, down $7.375. Weaker-than-expected first-quarter earnings and a gloomy prediction for the next six months pummeled the stock.
In the latest quarter, Dell's earnings plunged to 25 cents a sharefrom 52 cents a year ago. Analysts were estimating earnings of about 70 cents, according to Zacks Investment Research.
Dell also said costs associated with canceled and delayed notebook projects would hurt results for the next two quarters.
Dell's results depressed shares of other computer companies. Compaq Computer Corp. shed $1, to $56.375.
Advancers outnumbered decliners 3-to-2 among common stocks on the New York Stock Exchange. Trading was slower than in recent sessions, with about 223 million shares changing hands on the Big Board.
Investors refrained from making big bets on the market before tomorrow's vote by the House on President Clinton's deficit-reduction package, said Ronald Doran, head of institutional trading at C.L. King & Associates.
"The big question mark on Thursday is what gets presented, the specifics of the package, and does it get through," Mr. Doran said. "If we start to get a sense that there won't be a major deficit reduction attempt, it could hurt interest rates. I think that's why you're seeing lower volume."
House Democrats have grown so jittery about this week's scheduled vote on Mr. Clinton's deficit-reduction program that some are recommending the vote be postponed to June, the Wall Street Journal reported.
Prospects for growth stocks remain in doubt, and the economic recovery isn't vigorous enough to fuel demand for the shares of economically sensitive companies, traders said.
Stocks rebounded from early losses as the Conference Board said its May consumer confidence index sank to 61.5 in May from 67.6 in April. Economists surveyed by Bloomberg Business News forecast that the May index would fall to 65.6.
Also yesterday morning, the National Association of Realtors said home resales rose 2.7 percent in April, erasing March's losses, but below the 6.3 percent increase analysts projected.
"The consumer confidence numbers added credence to the theory that maybe the Fed won't tighten because the economy's not that robust," said Richard Ciardullo, head of trading at Eagle Asset Management. "That lends more confidence to the equity side."
Stock investors were encouraged by the stock market's resilience in the face of the Dell Computer plunge, said John Blair, head equity trader at NatWest Securities. "The stock is down considerably, but the rest of the sector is not acting badly," he said.
Telecommunications, electric utilities, major regional banks and retail stores led the advance in the S&P; 500.