NEW YORK -- U.S. stocks, tracking overseas markets, climbed for a second day as mounting evidence of a strengthening economy failed to push up interest rates.
The quarterly expiration of futures and options on stocks and indexes further contributed to the gain, as did reports suggesting the Federal Reserve doesn't think interest rates need to rise to fight inflation.
Telephone, oil, electrical equipment, computer and bank stocks paced the advance.
The bond market was strong "in the face of a housing-start number that suggests the economy is continuing to move along, albeit at a slow pace," said Joseph DeMarco, managing director of equity trading at Marinvest, a unit of HSBC Asset Management. Marinvest manages assets of $4.5 billion.
The Commerce Department said yesterday that housing starts in November climbed 3.9 percent, to a seasonally adjusted rate of 1.432 million -- the highest level in nearly four years.
The Dow Jones industrial average gained 25.43, to 3,751.57, driven by International Business Machines Corp., AlliedSignal Inc. and General Electric Co. The week's advance totaled 10.90 points. On Monday, the Dow industrials closed at a record 3,764.43.
Among broader market indexes, the Standard & Poor's 500 Index advanced 3.04, to 466.38. The Nasdaq Combined Composite Index rose for a third day, gaining 3.70, to 759.23, led by Tele-Communications Inc., MCI Communications Corp. and Price/Costco Inc.
The American Stock Exchange Market Value Index climbed 2.76, to 464.2.
Almost 13 stocks rose for every five that fell on the New York Stock Exchange yesterday. Volume was brisk as 357 million shares changed hands, up from 283.7 million Thursday.
Evidence of economic recovery lent "a positive bias" to stocks, ,, while option and futures expiration was "the wild card," said Dennis Jarrett, chief market analyst at Kidder, Pea body & Co.
Yesterday's report on November's housing starts didn't drive long-term interest rates higher, helping to stabilize stocks prices, Mr. Jarrett said.
"The bonds look like they're at least not leaning against the market," he said.
The yield on the benchmark 30-year Treasury bond fell to 6.28 percent, from 6.30 percent Thursday, amid expectations the Fed wouldn't raise interest rates quickly.
Lower interest rates make stocks more attractive relative to bonds, lower companies' financing costs, and ease concern about the length of the economic recovery.
"The economy has been doing well," said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co.
"And cyclical stocks should continue to do better because of the true economic recovery," he added.
Wheat First, Butcher & Singer in Richmond, Va. "turned very bullish yesterday," said Don Hays, director of investment strategy, partly because the broker thought semiconductor and financial stocks had bottomed out.
Meanwhile, yesterday's rallies in European stock markets were "a positive influence" on share prices as investors looked to an eventual European economic recovery, Mr. Jarrett said.
"Strength in Europe across the board contributed to a boost in the morning" in the United States, said Todd Clark, senior block trader at Mabon Securities Corp.
In Europe yesterday, Britain's FT-SE 100 index closed at its third straight record, rising 0.78 percent, to 3,337.12.
The CAC 40 index in France rose 1.67 percent, and Germany's DAX index closed up 0.63 percent.
Trading in the United States was heavier than usual because of buying and selling tied to "triple-witching" activity.
International Business Machines Corp. jumped $2.25, to $59.75,
a 52-week high. The computer-maker's fourth-quarter earnings forecast was raised by an analyst at PaineWebber Inc., a day after a similar move at Merrill Lynch & Co.
General Electric Co. rose $1.625, to $105.125. The industrial company announced a two-for-one stock split and raised its quarterly dividend to 72 cents a share, from 63 cents.
Regional bank stocks were among the session's winners.
First Fidelity Bancorp rose $1.625, to $46; Wachovia Corp. advanced $1.125, to $34; Suntrust Banks Inc. increased $1, to $45.875; and Norwest Corp. added 75 cents, to $24.75.
"Earnings are still good," said Michael Diana, bank analyst at Prudential Securities.
Profits "can easily grow 15 percent in 1994" at most banks "without any growth in net interest income," as bad debts subside and non-interest income expands, he said.
Olin Corp. rose $1.625, to $48.25. The maker of chemicals, metals and ammunition maker said it expects to take a $132 million charge in the fourth quarter to eliminate 600 jobs over the next two years, and analysts at Merrill Lynch & Co. and Bear Stearns & Co. raised their investment ratings.
Merry-Go-Round Enterprises Inc. slid 75 cents, to $2.125. The retailer said Thursday that it was meeting with bank lenders to renegotiate its bank debt, raising concern the company may soon file for Chapter 11 bankruptcy protection.