NEW YORK -- U.S. stocks soared to record highs yesterday for the second time this week as government reports pointed to an economic slowdown that will allow corporate earnings to grow while interest rates fall.
Oil, electrical equipment, soft drink, computer and drug stocks led the latest rally, which focused on larger companies with significant overseas sales that benefit from the weak dollar. Stocks also may have gotten a boost from today's simultaneous expiration of stock options, index futures and index options, traders said.
"You're getting a picture of an economy that is slowing, but still brisk, while inflation rises a modest amount but is far from out of control," said John Shaughnessy, director of research at Advest Inc. in Hartford, Conn.
Stocks have jumped 11 percent since early December on hopes of just such a "soft-landing," he said. The combination of moderate economic expansion, low inflation and stable or falling interest rates mean corporate earnings and dividends will continue to grow, Mr. Shaughnessy said.
The Dow Jones industrial average surged 30.78, or 0.76 percent, to 4,069.15, eclipsing a two-day-old record. International Business Machines Corp., Coca-Cola Co. and Boeing Co. led the gain.
The Standard & Poor's 500 index climbed 3.53, or 0.72 percent, to 495.41, also surpassing a record set Tuesday. About 14
common stocks advanced for every eight that fell on the New York Stock Exchange, where volume totaled 339.8 million shares compared with this year's average of 330.3 million.
Small-stock indexes gained, but did not fair as well as the blue-chip averages. The Nasdaq composite index rose 1.96, or 0.24 percent, to a record 809.34, and the Russell 2000 index of small stocks gained 0.79, or 0.30 percent, to 258.18. Higher prices for U.S. Healthcare Inc., Oracle Systems Corp., Tele-Communications Inc., Price/Costco Inc. and Comcast Corp. bolstered the Nasdaq's performance.
Most of the fuel for yesterday's move came from a pair of government reports. One showed consumer prices rose 0.3 percent in February, generally matching expectations, and another said February housing starts tumbled a larger-than-expected 2.6 percent.
In response, yields on 30-year Treasury bonds dropped for a seventh straight day, falling as low 7.28 percent, their lowest since last June. Later declines pushed yields back up to end at 7.37 percent, little changed from Wednesday.
Lower bond yields make stocks more attractive compared to fixed-income investments and make it less expensive for companies and consumers to borrow money.
"The numbers this morning confirm an economic slowdown," said Timothy Straus, manager of institutional sales at Hancock Institutional Equity Services in Boston.
And while a slowing economy historically has retarded corporate earnings, the recent slump in the dollar means U.S. goods sold abroad translate into fatter profits for American companies.
"As the dollar declines, you are getting a compensation for the increased concerns about the domestic economy," Mr. Straus said. That's a "massive foreign benefit for U.S.-domiciled, transnational corporations. You can see that in the stock market; those stocks are acting the best."
Among multinationals, International Business Machines Corp., with 62 percent of sales overseas, added $1.75, to $83.50; Coca-Cola, which gets 80 percent of earnings and 67 percent of sales outside the United States, surged $1.50, to $58.50; and Caterpillar, which sold 51 percent of its goods overseas in the fourth quarter, jumped $1.25, to $51.