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Dow ends slump with 24-point gain


NEW YORK -- U.S. stocks, tracking Treasury bonds, snapped a two-session slump yesterday after Federal Reserve Chairman Alan Greenspan reassured investors that inflation won't heat up as the economy expands.

In his twice-yearly appearance before Congress, Mr. Greenspan said the outlook "is the best we have seen in decades," thanks to subdued inflation and low long-term interest rates.

The rally in stocks was tempered by concern that interest rates are bound to move higher this year as growth accelerates, traders and analysts said.

"People are optimistic the Fed's doing the right thing, but they're not jumping in with both feet," said Dale Tills, manager of institutional equities trading at Charles Schwab & Co. in San Francisco. "It's fairly clear that rates will, at best, stay where they are now. Most likely, they'll inch their way up."

The Dow Jones industrial average closed up 24.20, at 3,911.66, recouping two-thirds of Friday's 35.18-point loss. Minnesota Mining & Manufacturing, Caterpillar Inc. and Procter & Gamble Co. led the advance.

The Standard & Poor's 500 Index rallied 3.77, to 471.46, after falling 2.66 Friday. The Nasdaq Combined Composite Index, which fell as much as 3.04 yesterday, recovered to close up 2.30, at 791.15. The Nasdaq index fell 1.37 Friday. Nine stocks rose for every eight that fell on the New York Stock Exchange.

The Dow Jones Utilities Average, a barometer for interest rates, rallied 3.23, to 211.77. On Friday, the average slumped 3.56, to 208.54, the lowest close since April 29, 1992. The American Stock Exchange Market Value Index rose 1.43, to 472.38.

Trading was slow by recent standards, with about 271 million shares changing hands on the Big Board, down from a daily average of about 299 million shares this year.

Mr. Greenspan's comments before a House Banking subcommittee, the so-called Humphrey-Hawkins testimony, helped ease concern that the central bank might raise interest rates again to damp inflation. The Fed raised short-term interest rates Feb. 4 for the first time in five years, triggering a 96-point drop in the Dow industrials.

Stocks and bonds fell initially after Mr. Greenspan began speaking at 10 a.m., as investors focused on his comments that money-market rates are more likely to rise than fall.

Treasury bonds shed almost all their overnight gains, while the slump in bonds helped send stocks lower. The Dow industrials retreated to a loss of as much as 2.53 points just after Mr. Greenspan spoke.

Both markets rebounded later as investors became convinced that inflation wasn't a problem and that the economy will expand faster than previously expected, traders said.

Bond investors were encouraged by Mr. Greenspan's suggestion that the Fed would try to keep the inflation rate

below 3 percent. Stocks, meantime, were buoyed by testimony that the Fed expects gross domestic product after inflation to grow 3 percent to 3.25 percent in 1994, up from the 2.5 percent to 3.25 percent range estimated last summer.

The yield on the 30-year bond fell as low as 6.59 percent, down from 6.66 percent Friday, which marked the highest yield since July 27, 1993. The yield closed at 6.60 percent.

British Petroleum PLC, Novell Inc., Intel Corp., Tele-Communications Inc., and Telefonos de Mexico Class L American depositary receipts were the most actively traded on the U.S. composite list.

BP's American depositary receipts, each of which represents 12 ordinary shares, rose 75 cents, to $64.625, as investors anticipate the next quarterly dividend payment.

Quaker Oats Co. climbed $1.50, to $64.50. The Chicago-based food maker expects earnings per share in the second half to be "up strongly" because of increased U.S. sales, the Wall Street Journal reported. Quaker was raised to "moderate outperformer" from "market performer" at Goldman, Sachs & Co.

EA Engineering Science & Technology jumped $5.75, to $26.25. The environmental control company received a $75 million contract by the U.S. Army Corps of Engineers to provide hazardous, toxic and radioactive waste environmental engineering services.

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