NEW YORK -- U.S. stocks bounded to a seven-month high yesterday amid growing confidence that the Federal Reserve's five interest-rate increases this year are stemming inflation without crippling the economy.
A monthly survey by the Federal Reserve Bank of Philadelphia reinforced this perception, by showing manufacturers in the Philadelphia region paid less for raw materials in September even as manufacturing continued to expand.
"We're walking a nice straight line between boom and bust," said John W. Church Jr., chief investment officer of Glenmede Trust Co. in Philadelphia, which manages more than $7 billion. "That's given a lot of investors confidence that the Fed is acting responsibly."
The Dow Jones industrial average vaulted 58.55, to 3,953.88, its highest close since Feb. 3, the day before the Fed raised interest rates for the first time in five years. The advance, the biggest since Aug. 24, brought the average within 25 points of its record close of 3978.36 set Jan. 31.
Computer-guided "buy" orders flooded the market in the last 10 minutes of trading, adding 21 points to the Dow industrials, said Greg Schoenleber, an analyst at Birinyi Associates Inc., a firm that tracks computer-driven trades.
Also exaggerating the gains was a scarcity of traders and investors because of the observance of the Jewish holiday Yom Kippur.
"With Yom Kippur, you don't have the normal liquidity that keeps the market stable," said Tom Peters, a managing director at Susquehanna Investment Group Inc. "If this were tomorrow, the market might be moving half as much as it is today."
Even with the large computer-guided trades, New York Stock Exchange volume reached just 281 million shares, down from 297 million Wednesday.
Some of yesterday's gains might be tied to today's "triple witching," when options and futures on stock indexes expire concurrently. Stock prices often gyrate in the days preceding the quarterly event.
The Standard & Poor's 500 index sprang 6.01, to 474.81, led by telephone, beverages, telecommunications and electrical equipment. Gold stocks, a traditional inflation hedge, were the biggest decliner.
The Nasdaq composite index rocketed 10.05, to 778.66, its highest close since March 25. Gains in MCI Communications Corp., Lin Broadcasting Corp. and Parametric Technology Corp. bolstered the index.
The Russell 2000 index climbed 2.23, to 259.78, the Wilshire 5000 Index soared 54.05 to 4707.51 and the American Stock Exchange market value index climbed 2.41, to 459.74.
"The tone of the market has changed from one of higher rates and a big downdraft in stock prices to the possibility of a little JTC uptick in rates and good earnings," said Ronald Doran, head of institutional equity trading at C.L. King & Associates Inc. "Cash is starting to flow into equity mutual funds again and is being put back to work."
Stocks rose along with bonds after the Philadelphia Fed said its monthly survey of 150 manufacturers in Pennsylvania, Delaware and southern New Jersey showed manufacturing output rose slightly while prices paid for materials and received for goods both fell.
Its September prices-paid index for raw materials fell to 40.4 from 48.4 in August, while its prices-received index for manufactured goods fell to 15.0 from 24.5. The decline comes after last month's survey found prices paid and received surged to five-year highs.
The report is scrutinized because it's "a September number and it gives you not only a sense of where inflation is but where it's going," said Hugh Johnson, chief investment strategist at First Albany Corp. "There's guarded optimism right now."
The Philadelphia Fed report reinforced the message from yesterday's report on August consumer prices that inflation wasn't running away. Reflecting this optimism, the yield on the ,, benchmark 30 1/4 -year bond fell as low as 7.63 percent yesterday, from 7.68 percent Wednesday, as concern dissipated that inflation would accelerate and erode the return from bonds.
Declines in the Commodity Research Bureau's index of 21 key commodity prices also lent credence to the perception that inflation wasn't exploding. The CRB index fell 1.49, to 228.90 yesterday, after falling 2.74 points in the past two days.
"The sentiment now is that the Federal Reserve really won't raise rates until at least after the November elections," said Peter DaPuzzo, senior managing director at Cantor Fitzgerald & Co. Higher rates raise borrowing costs and hamper profit growth; they also make stocks less attractive compared with fixed-income investments.
Structural Dynamics Research Corp. sank $2.75, to $4.875. The maker of mechanical-design automation software said it uncovered bogus sales in its Asian operations that will result in a third-quarter loss and restatement of results for the past two years. Parametric Technology, a competitor, rallied $3.9375, to $31.50.
ITT Corp. fell $1.50, to $80.125. The conglomerate may raise about $4 billion to finance media and entertainment acquisitions by selling some lending and reinsurance businesses.
Caterpillar leapt $2.625, to $57.75. The maker of construction machinery said exports to Mexico rose 77 percent in the first six months, helped by the North American Free Trade Agreement.