Stocks gain on good economic news Dow up 9.5


Stocks advanced yesterday after Alan Greenspan, chairman of the Federal Reserve Board, said that second-quarter economic growth would exceed forecasts. The Dow Jones industrial average ended up 9.5 points, to 3,544.78.

Mr. Greenspan told a House Banking subcommittee that the economy grew "somewhere around about 3 percent" last quarter, exceeding economists' expectations of 2.3 percent growth.

"Greenspan's remarks on the outlook for the economy, as well as decent earnings reports coming through today, especially from Merck & Co. and Pepsico Inc., have encouraged investors to take another look at stocks," said James Solloway, director of research at Argus Research.

Among broader market averages, the Standard & Poor's 500 Index rose 1.28, to 447.31, led by drug, auto and retail stocks, and the Nasdaq Combined Composite Index spurted 6.07, to 701.9.

Declining common stocks outpaced advancing issues by 5-to-4 on the New York Stock Exchange. Trading was active, with about 277 million shares changing hands.

Early in yesterday's session, the Dow slid 24 points, to a session low of 3,511.25, as the yield on the 30-year Treasury bond jumped to 6.59 percent, from 6.54 percent Monday. Long-dated Treasuries recouped most of their early losses, and yields fell back to end at 6.55 percent.

Bonds and stocks both slumped after Mr. Greenspan told Congress that the news on inflation this year has been "disappointing."

Investors reacted after Mr. Greenspan forecast that inflation would stay low, at about 3 percent to 3.25 percent this year, but higher than the Fed's projection in February of 2.5 percent to 2.75 percent.

With Mr. Greenspan implying that any change in interest rates is more likely to be up than down, "there is enough uncertainty around to keep a lid on how high the market can go in the near term," Mr. Solloway said.

Drug and technology stocks helped lead stocks higher.

"Those two groups particularly were oversold," said Michael Lockwood, head of U.S. trading at S.G. Warburg.

Drug stocks rose in the wake of a strong second-quarter earnings report from Merck & Co., and an upgraded investment opinion from Wertheim Schroder & Co.

Merck increased $1.125, to $33.25, after it said earnings rose 8 percent before a $775 million restructuring charge.

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