NEW YORK -- U.S. stocks surged yesterday amid diminished concern over a trade dispute with Japan and increased confidence that this week's economic reports will show inflation remains subdued.
"People feel right now that inflation is OK and that some kind of compromise will be reached between the U.S. and Japan that won't be too drastic," said Thomas Gallagher, head of institutional trading at Oppenheimer & Co.
The Dow Jones industrial average closed up 24.21, at 3,928.27, after closing 9.28 higher, at 3,904.06, on Monday. The index was lifted by shares of Minnesota Mining & Manufacturing Co., up $2.625, at $108.50; and AlliedSignal Inc., up $1.75, at $79.75.
The market also got a boost from the Federal Reserve's report yesterday morning that industrial production rose 0.5 percent in January, in line with economists' expectations.
Investors had been watching the report for further evidence of a strengthening economy.
The dollar strengthened against the yen yesterday as investors discounted the likelihood of a trade war with Japan. "This is all part of the negotiating process," said James R. Solloway, director of research at Argus Research.
The dollar recovered to 103.9 yen, from 102.1 Monday, a six-month low, after trade talks between Japan and the United States broke down Friday.
"There will be a lot of huffing and puffing for local television, and [President] Clinton will get some good sound bites, but the administration will avoid doing something stupid," said Peter Canelo, chief investment strategist at NatWest Securities Corp.
The Standard & Poor's 500 Index rose 2.29, to 472.52. Food and semiconductor companies lifted the index higher. Hershey Foods Corp. rose $2.875, to $51.50; Kellogg Co. rose $1.75, to $53.375; and Campbell Soup Co. gained $1.125, to $39.875.
Intel and Novell Inc. said they will jointly develop products by the end of March to enable customers to simplify desktop, data and network management. Novell rose 37.5 cents, to $21.50.
Ten common stocks rose for every seven that fell on the New York Stock Exchange. Trading was active, with 306.7 million shares changing hands, compared with the six-month average of 278 million shares.
Concerns that inflation would rise as the economy gains strength were subdued in anticipation of the consumer price report, to be released by the Labor Department tomorrow, analysts said.
"Investors need to be convinced that interest rates will not go higher any time soon," said Peter Cardillo, research director at Westfalia Investments. "The consumer price index this Thursday will confirm that inflation is in check."
Inflation causes interest rates to rise, making fixed-income investments more attractive relative to stocks. The yield on the benchmark 30-year Treasury bond was 6.45 percent. Last week the yield rose to 6.47 percent, its highest since Aug. 9.
"Inflation is not a realistic fear right now" because labor shortages haven't occurred as in past economic recoveries, said Gene Grandone, vice president at Northern Investment Counselors, a unit of Northern Trust Corp. which manages assets of $6 billion.
Scientific-Atlanta Inc. stock rose $2, to $29, after signing aagreement with Oracle Corp. to jointly develop and market technologies for the emerging telecommunications network. Oracle gained 87.5 cents, to $33.625.
Softimage Inc. shares soared $6.125, to $21.25, after the animation software-maker agreed to be purchased by Microsoft Corp. for about $130 million worth of stock, or between $21 and $24 a share. Microsoft rose 62.5 cents, to $79.75.
Ramsay-HMO Inc. shares soared $9.375, to $55.25, after it agreed to be bought by United Healthcare Corp. in a $500 million stock swap.
Boise Cascade Corp. stock rose $1.125, to $27.125. The paper and timber company announced a restructuring of its Canadian unit that could be funded by a recapitalization and a possible sale of new stock.
Shares of Cigna Corp. rose $1.625, to $68. The insurer said fourth-quarter net income climbed to $2.70 a share from 70 cents a year ago, topping analysts' estimate of $1.35 a share.
La-Z-Boy Chair Co. fell $2, to $38, after reporting third-quarter net income rose to 44 cents a share from 35 cents a year ago, below analysts' estimate of 47 cents.