NEW YORK -- U.S. stocks, buoyed by rallies in bonds and the dollar, posted their biggest gain in two weeks yesterday amid expectation the Federal Reserve will raise lending rates today and shore up confidence in U.S. assets.
"The Fed is tightening credit the same way they lowered it -- gradually -- and that's likely to extend the recovery," said Todd Clark, senior director in equity trading at Mabon Securities Corp.
Rallies in bellwether companies such as Aluminum Co. of America, Eastman Kodak Co. and Chrysler Corp. also helped the stock market recoup Friday's losses, traders said.
The Dow Jones industrial average climbed 28.26, to 3,829.73, more than retrieving Friday's 20.52-point decline and registering its biggest gain since a 55.51-point rally Oct. 28.
Alcoa and Kodak together accounted for almost 12 points of the advance. Alcoa, which Friday declared a two-for-one stock split and lifted its common-stock dividend by 12.5 percent, jumped $2.25, to $83.25.
Kodak shot up $1.875, to $47.625, after a Prudential Securities Inc. analyst, Alex Henderson, raised his investment rating to "buy" from "hold." The photographic-equipment maker recently completed another step in its program to sell billions of dollars of assets.
Broader market indexes also advanced. The Standard & Poor's 500 index vaulted 3.69, to 466.04, paced by gains in telephone, beverage, auto and tobacco shares.
Chrysler was among the biggest gainers in the S&P; 500. Shares of the nation's third-largest automaker soared $3.125, to $49, after Kirk Kerkorian, its largest shareholder, said he plans to raise his 9 percent stake and urged Chrysler to buy back stock and raise its dividend. He also asked Chrysler to cancel its shareholder-rights plan, which is triggered when someone acquires more than 10 percent of the company's stock.
The Nasdaq composite index leapt 6.02, to 768.14, helped by Microsoft Corp., Intel Corp. and Chiron Corp. Chiron soared $2.75, to $74.25, after the Wall Street Journal said the biotechnology company may sell a 49 percent stake to Switzerland's Ciba-Geigy AG for about $2 billion. Chiron soared $11.75 on Friday amid speculation of such an alliance.
Among other active Nasdaq stocks, Powersoft Corp. surged $7.875, to $69.25. Sybase Inc. agreed to acquire Powersoft for stock valued at $944 million.
Although all three major stock-market measures posted gains, only six stocks advanced for every five that fell on the New York Stock Exchange. Trading was moderate, with about 261 million shares changing hands on the Big Board.
Many economists expect the Federal Open Market Committee to vote to raise the target rate on federal funds, or overnight bank loans, to 5.25 percent from 4.75 percent today. This year, the central bank has raised the fed funds target five times.
Some traders said stocks could fall today if the Fed doesn't raise the fed funds target by more than 50 basis points. They said a bigger increase is needed to convince some investors of the Fed's resolve to rein in inflation.
For now, optimism that a rate increase will make dollar-denominated assets such as bonds and stocks more appealing offset concern that higher rates will hurt stocks by slowing the economy and corporate-profit growth, traders said.
Expectation of higher rates sent the dollar to one-month highs against the German mark and Japanese yen. The U.S. currency also gained support after Sweden's approval of a referendum to join the European Union drove the mark lower against the Swedish krona.
Stocks also were helped by President Clinton's call for spurring world trade during an Asian trade forum and by optimism that a Republican-led Congress may move to cut the capital-gains tax, traders said. Speaking in Jakarta during a meeting of the Asia Pacific Economic Cooperation forum, Mr. Clinton called for speedy ratification of the new global trade agreement.
Cisco Systems Inc., American Express Co., Chrysler, Powersoft and Sybase were the most actively traded U.S. stocks.