NEW YORK — NEW YORK -- U.S. stocks rallied yesterday as a strong jobs report led to surges in paper, chemical and auto shares, only to relinquish some gains in the final hour as computer-guided "sell" orders swept the market.
Long-distance telephone companies led the retreat, amid concern that a new price war could hurt their profits. The perception that a thriving economy will put more pressure on the Federal Reserve to raise interest rates later this month, eventually slowing earnings growth, also held stocks back.
"The market is coming back to a balanced view," said Kevin Means, vice president and chief of equities at Aetna Life Insurance and Annuity Co., which manages $19 billion. "Earnings continue to be impressive, but the Fed is likely to tighten credit at least one more notch."
Higher rates increase corporate borrowing costs, thereby crimping future earnings. They also make fixed-income investments more attractive than stocks.
The Dow Jones industrial average gained as much as 36.34, at 3,887.26, before closing up 16.49, at 3,867.41. Computer-driven sell orders lopped seven points off the average, according to Birinyi Associates Inc. of Greenwich, Conn.
Aluminum Co. of America, International Paper Co., Union Carbide Corp., Caterpillar Inc. and International Business Machines Corp. led the gain, outweighing a slump in AT&T; Corp.
The Standard & Poor's 500 closed up 0.34, at 460.68, after rising as much as 2.15 points.
The Nasdaq composite index, which rose as much as 5.07, closed up 4.03, at 749.69. Microsoft Corp. and Apple Computer Inc. led the gain. Apple Computer, the most actively traded stock, soared $3.125, to $42, as more than 9 million shares changed hands.
The Cupertino, Calif.-based maker of Macintosh computers rose after Information Week, a trade magazine, reported that Apple may be the target of a takeover attempt by Oracle Systems Corp., Matsushita Electric Industrial Co. and Philips Electronics NV. Apple, Oracle and Matsushita declined to comment.
Almost twelve stocks rose for every nine that fell on the New York Stock Exchange. Trading was brisk, with about 308 million shares changing hands on the Big Board.
Computer, paper, semiconductors and aluminum stocks paced the market's rise yesterday, as the December employment report focused investor attention on the economy's vigor.
The Labor Department yesterday said the U.S. economy created 256,000 jobs in December as the unemployment rate fell to a 4 1/2 -year low of 5.4 percent, capping the best annual job growth in a decade.
IBM rose $1.125, to $75.125, approaching its 52-week high of $76.375, set Oct. 28, 1994. CS First Boston Corp. boosted its earnings estimates for the company yesterday, citing strong demand for mainframes and personal computers and reduced costs.
Chairman Louis Gerstner yesterday told workers the bulk of layoffs are over and indicated IBM may raise its dividend.
Auto shares gained after U.S. automakers Thursday said domestic sales of cars and light trucks rose 7.4 percent in 1994, making it their best year since 1988. General Motors Corp. went up 25 cents, to $43.25, and Chrysler Corp. rose $1, to $52.625.
Paper and lumber stocks, meantime, rose to their highest levels in almost three months after PaineWebber Inc. and Salomon Bros. Inc. raised earnings estimates for several paper producers, citing the benefit of paper price increases.
International Paper jumped $1.625, to $77; Georgia-Pacific Corp. added $1.875, to $75.625; Willamette Industries Inc. climbed $1.25, to $48; Temple-Inland Industries Inc. rose $1.50, to $48.375. Weyerhaeuser Co. went up 75 cents, to $39.50; and Stone Container Corp. rose $1, to $18.625.
Chemicals were another bright spot, as Dow Chemical Co. soared $2, to $69.875, and Union Carbide Corp. closed up $1.125, at $30.50.
Long-distance telephone providers were the biggest decliner in the S&P; 500 amid concern the industry is on the brink of another price battle that would crimp profits.
An afternoon recovery in the Treasury bond market helped bolster stocks, traders said. The yield on the Treasury's benchmark 30 1/4 -year bond closed at 7.86 percent, from 7.88 percent Thursday, after rising as high as 7.94 percent in the morning.