NEW YORK -- U.S. stocks recovered yesterday from two days of declines, as rallies in bank, auto and semiconductor shares offset lingering concern about the economic recovery.
The market's rebound was hampered by a surge in long-term interest rates.
"Today's market action is saying that maybe the bull market isn't over," said Gerald Perritt, manager of the $100-million Capital Growth Fund Inc.
The Dow Jones industrial average rose 0.56, to 3,589.49, after bouncing between 3,575.80 and 3,598.99 yesterday. Gains in J. P. Morgan & Co. and General Motors Corp. offset declines in Chevron Corp. Wednesday, the average fell 18.17 to 3,588.93, its lowest close since Aug. 17.
The Standard & Poor's 500 Index went up 0.85, to 457.50, after falling 1.87 Wednesday. The Nasdaq Combined Composite Index, led by Intel Corp., soared 6.98, to 737.71, after plunging 8.63 Wednesday to 730.72, its lowest level in three weeks.
Advancers outpaced decliners by a margin of 9-to-7 among common stocks on the New York Stock Exchange. Trading was brisk, with 258 million shares changing hands on the Big Board.
Banks, autos, semiconductors, insurance and health care issues led the advance in the S&P; 500.
"The financials are holding up real well because of the level of interest rates," said Mr. Perritt of Capital Growth. Because the spread between borrowing costs and lending rates widens "when you've got very low interest rates, bank profits . . . swell."
Bank stocks benefited from expectations of strong third-quarter earnings, reinforced by positive comments from analysts at First Boston Corp., Salomon Brothers and Merrill Lynch & Co.
Citicorp stock jumped $1.75, to $35.375, after setting a new 52-week high of $35.50. J. P. Morgan soared $1.75, to $77.625, hitting a new 52-week high of $77.875 in the process. J. P. Morgan is expected to gain from strong trading revenue, First Boston banking analyst Thomas Hanley told the firm's sales force this week.
Semiconductor, auto, and health care issues also were among the day's biggest gainers.
In the Nasdaq market, Intel rebounded $1.75, to $64.75. Intel and MCI Communications Corp. agreed to develop ways to integrate personal computers and telephones for advanced PC-based information, audio and video conferencing.
General Motors Corp. climbed $1.25, to $46, Ford Motor Co. rose $1.375, to $52.875, and Chrysler Corp. climbed 50 cents, to $43.50.
Chrysler Chairman Robert Eaton said yesterday that he did not expectprotracted strikes by U.S. and Canadian autoworkers. Canadian autoworkers targeted Chrysler in negotiations to set the pattern for a new contract. The Wall Street Journal's "Heard on the Street" column quoted analysts as saying a strike in Canada would hurt Chrysler's stock and earnings.
Drug stocks rebounded from concern about the earnings outlook spawned by a prediction of weaker-than-expected earnings from Baxter International Inc., which supplies medical products to hospitals.
Health care stocks were helped yesterday by strong earnings at Glaxo Holdings PLC, a British pharmaceutical maker. Glaxo's American depositary receipts advanced $1.375, to $19.50. The company posted higher-than-expected fiscal 1993 earnings of $2.6 billion, up 17 percent from the prior year. Each ADR represents two shares.
Hanson PLC, Royal Dutch Petroleum, Intel, Glaxo and Baxter were the five most active stocks on the U.S. composite list.
Rebounds in beaten-down stocks offset a sudden surge in long-term interest rates. The yield on the benchmark 30-year bond soared 10 basis points to 5.96 percent, above the record low yield of 5.84 percent Wednesday.
"People are realizing the strength in the bond market is a symptom of the weakness in the economy," said Michael Metz, chief investment officer at Oppenheimer & Co.
Bond prices tumbled on a report showing fewer Americans than expected filed unemployment claims in the latest week, suggesting the economy was stronger than some think.