NEW YORK -- Evidence that inflation abated in June sent long-term interest rates to a record low yesterday, igniting a rally in stocks that carried over-the-counter issues to a record high.
"People have concluded that even though stocks are high, they're probably going to go higher because inflation and interest rates are going to accommodate them," said Robert Stovall, president of Stovall/Twenty-First Advisers. "That's the story."
The Dow Jones industrial average rose 27.11, to 3,542.55, ending below a session high of 3,550.65. The average now sits about 12 points below its all-time closing high of 3,554.83, set May 27. Sears, Roebuck & Co., which rose $1.875, to $44.50, led the surge.
The Nasdaq Combined Composite Index sprinted 4.02, to a record close of 712.49, swamping the previous high of 708.85, set Feb. 4.
Standard & Poor's 500 Index gained 1.99, to 450.08. Its record closing high is 456.34, set March 10.
Advancing stocks out-gained declining issues 4-to-3 on the New York Stock Exchange. Trading was active, with about 297 million shares changing hands on the Big Board.
Stocks received a boost from the Labor Department's report yesterday that the Consumer Price Index was unchanged last month, against economists' expectations for a 0.1 percent rise.
Investors, encouraged by the CPI report and better-than-expected earnings from big companies such as Federal Express Corp., CBS Inc. and Rubbermaid Co., shrugged off more dismal outlooks from companies such as Dell Computer Corp.
The Dow Jones transportation average surged 39.08, to 1,543.62, led by surges in UAL Corp. and Federal Express. Federal Express jumped $6.50, to $53.375, after the express-delivery airline posted a 56 percent increase in fourth-quarter earnings.
Airlines rallied as oil prices fell to a three-year low. UAL, parent of United Airlines, soared $6.75, to $133, and AMR Corp., parent of American, gained $1.25, to $62.50.
Auto stocks closed mostly higher on better-than-expected car sales for early July. U.S. sales of North America-made cars reached an annual rate of 6.9 million, exceeding analysts' expectations of an annual pace of 6.5 to 6.8 million. General Motors Corp. climbed 62.5 cents, to $47.50, and Ford Motor Co. gained 75 cents, to $51.375. Chrysler Corp., meanwhile, eased 37.5 cents, to $46.625.
Treasury bond yields tumbled to a record low of 6.56 percent after the consumer price report showed inflation was the lowest in two years. Declining interest rates make stocks more attractive relative to fixed-rate securities.
"Interest rates are the story," said Ronald Doran, director of institutional trading at C. L. King & Associates. "We got a good CPI number and a great bond market."
Diminished concern about inflation was also reflected in falling gold and oil prices. Gold for August delivery fell $3.10, to $391.40 an ounce, while August crude oil fell 64 cents, to $17.49 a barrel, its lowest level in three years.
Bolstering the good news on rates, the number of companies that have reported increases in quarterly earnings this week has outnumbered those posting decreases by a margin of 3-to-1, said Don Hays, chief investment strategist at Wheat First Securities.
One stock bucking that trend, however, was Dell Computer Corp., which slid $3.375, to $15.875, after the personal computer company said it expected to report a loss of $1.65 to $1.85 a share for the quarter ending Aug. 1 because of write-downs and restructuring charges.