|TC NEW YORK -- U.S. stocks followed bonds higher yesterday after a smaller-than-expected rise in July consumer prices stirred hopes the Federal Reserve won't be so aggressive in raising interest rates next week.
The Federal Open Market Committee, which sets monetary policy, will meet Tuesday and Wednesday.
Stock indexes also were buoyed by a resurgence of takeover speculation in drug company Amgen Inc. and food makers H. J. Heinz Co. and CPC International Inc., traders said.
The Dow Jones industrial average rose 17.81, to 3,768.71, more than recouping Thursday's 15.86-point drop. Exxon Corp. and Caterpillar Inc. accounted for about half of the gain.
Exxon leapt $2.125, to $60.25, after a federal jury awarded far smaller damages to Alaskan fishermen hurt by the 1989 Exxon Valdez oil spill than they sought. The $286.8 million award was less than a third of the $895 million requested and fueled speculation that final punitive damages may be less than the maximum $15 billion that analysts estimated.
Caterpillar, meantime, gained $2.125, to $105.125, after the construction-machinery maker said sales of heavy equipment jumped 20 percent in July from the same month last year, indicating 1994 sales will be stronger than expected.
Broader market indexes also recouped Thursday's losses. The Standard & Poor's 500 index advanced 3.07, to 461.95, after falling 1.42 Thursday. The Nasdaq composite index rose 3.41, to 731.61, after a drop of 0.01.
Three stocks rose for every two that fell on the New York Stock Exchange. Trading was moderate, with about 250 million shares changing hands on the Big Board.
Stocks rose after the Labor Department reported that the July consumer price index rose 0.3 percent, and the so-called core rate, which excludes volatile food and energy prices, rose a smaller-than-expected 0.2 percent.
The evidence that inflation isn't accelerating lifted bond prices. The new benchmark 30 1/4 -year bond, down 10/32 before the report, rose as much as 7/8 afterward. The closing yield fell to 7.48 percent, down from 7.56 percent Thursday.
"The fact that CPI wasn't a higher number made everyone happy," said Barry Berman, head trader at Robert W. Baird.
The CPI also negated Thursday's higher-than-expected rise in the producer price index, analysts said. The PPI rose 0.5 percent amid surging coffee and gasoline prices, more than the 0.4 percent increase economists had expected.
Drug stocks were active amid renewed takeover speculation. Three drug companies, Syntex Corp., Lilly and Amgen Inc., were among the five most actively traded U.S. stocks.
Syntex dropped 87.5 cents, to $21.75. The company denied market talk that Roche Holding AG's $5.8 billion takeover offer for the drug company had unraveled.
Lilly shares, which rose as high as $55, closed down 12.5 cents, at $52.375, as analysts cast doubt on the likelihood of a takeover by Britain's Glaxo Holdings PLC.
Amgen went up $1.625, to $53.375, amid expectations of more drug-industry mergers.