NEW YORK -- U.S. stocks gained yesterday for a fourth day as bond yields fell to a three-month low and confidence grew that steady economic growth will result in strong fourth-quarter corporate earnings.
Electrical equipment makers such as Emerson Electric Co., automakers such as Ford Motor Co. and soft-drink issues such as Coca-Cola Co. paced the latest advance.
"I'm very bullish," said Stanton Feeley, chief investment officer of $2.2 billion SunAmerica Asset Management. He looks for corporate earnings to grow an average of 10 percent in 1995. "The stock market's going to love that," he said, and send the Dow Jones industrial average as high as 4,200 in the first three months of 1995.
The Dow Jones industrials surged 28.26, to 3,861.69, helped by gains in General Electric Co., United Technologies Corp. and Aluminum Co. of America. Since last Tuesday, the average has climbed 94.54 points, or 2.5 percent.
Among broader market indexes, the Standard & Poor's 500 index was up 2.64, to 462.47. The Nasdaq combined composite index climbed 4.00, to 746.19, its fifth straight advance, as Intel Corp., Cisco Systems Inc., Bay Networks Inc., Oracle Systems Corp. and Microsoft Corp. gained.
Almost six stocks rose in price for every five that declined on the New York Stock Exchange. Trading totaled 211.2 million shares, up from 196.4 million Friday, after the three-day Christmas weekend and before the New Year's holiday.
Meanwhile, yields on 30-year Treasury bonds dropped to 7.76 percent, the lowest since Sept. 19 and down from a recent peak of 8.16 percent in early November. Bond prices rallied, pushing down yields, as reports of slowing home sales and modest gains in holiday retail sales fueled optimism that this year's increases in interest rates have slowed the economy enough to subdue inflation.
Lower interest rates make stocks look more attractive relative to bonds. They also reduce companies' and consumers' borrowing costs.
"Interest rates can decline for the next six to nine months," said SunAmerica's Mr. Feeley. "The inflation dragon that was haunting us hasn't bitten yet. You might see the [30-year Treasury bond yield] go from 7.8 percent back to 7 percent.
Increased merger and acquisition activity promises higher prices for some stocks, traders said.
ITT Corp. jumped $4.375, to $88.125. The conglomerate agreed to sell its commercial finance division to Deutsche Bank AG and its Island Finance unit to Norwest Corp. for a total of $3.4 billion, and said it was in talks to sell three more units of its ITT Financial Corp. for $1.8 billion.
The rally in ITT also helped General Electric as investors bet whether GE will eventually spin off divisions such as its NBC television network, said Todd Clark, senior trader at Mabon Securities Corp. GE climbed $1.50, to $51.25.
Among insurance companies, Home Holdings Inc. added $1.50, to $9.75. Zurich Insurance and Trygg-Hansa AB of Sweden formed an alliance in which Zurich will take over part of Trygg-Hansa's stake in Home Holdings, and Home agreed to buy back its stock at $10 a share.
Also yesterday, Rite Aid Corp. agreed to buy Perry Drug Stores Inc. for $11 a share, or about $132 million. Perry shares soared $3.25, to $10.875, while Rite Aid added 12.5 cents, to $22.375.
"People are going to look a little more closely at those types of stocks," said Kenneth Ducey, head of trading at BT Brokerage, a unit of Bankers Trust New York Corp. "It shows you that mergers and the selling off of big units aren't over yet."
Many companies spent the past five years strengthening their financial condition and competitive position, Mr. Feeley said, "and the question now is, 'How do you grow from here?' Oftentimes, it's through strategic acquisitions. The strong are going to get stronger."
Stocks extended last week's rally, when the Dow industrials gained 26.24, or 0.69 percent, and the Standard & Poor's 500 Index added 1.03, or 0.22 percent, amid optimism that companies will deliver stronger-than-expected fourth-quarter earnings.
Telefonos de Mexico SA, Bay Networks, RJR Nabisco Holdings Corp., Wal-Mart Stores Inc. and Perseptive Biosystems Inc. were the most active stocks in composite trading.
More than two dozen American depositary receipts issued by Latin American companies tumbled $1 or more yesterday as the peso resumed its plunge against the dollar..