NEW YORK — NEW YORK -- U.S. stocks rose yesterday as economically sensitive shares rebounded amid optimism that the economy has not slowed enough to hurt their earnings.
"Cyclical stocks will benefit psychologically as long as people believe that the [Federal Reserve] will not raise rates and nip the earnings bud, so to speak," said John Shaughnessy, director of research at Advest Inc. in Hartford, Conn.
Among the stocks rising the most were General Motors Co., Aluminum Co. of America and Caterpillar Inc., all so-called cyclical companies -- those sensitive to swings in the economy -- and all large international companies.
"Worldwide economic growth is strong and the dollar is weak enough for demand to enhance earnings growth of multinational companies," said Phil Schettewi, chief portfolio strategist at Loomis Sayles in Washington.
The rally by GM, Alcoa and Caterpillar, along with gains by Procter & Gamble Co., helped the Dow Jones industrial average to rebound from early losses to close at 4,321.27, up 6.57, its 22nd record high this year. The index, which rose 1.2 percent this week, increased 7.7 percent this month.
About 1,170 shares advanced and 1,039 declined on the New York Stock Exchange.
Trading fell to 322.96 million shares from 350.85 million, approaching the 321.71 million average daily trading volume over the past six months.
Procter & Gamble rose, boosting other household-product makers, after posting strong fiscal third-quarter earnings Thursday.
And yesterday, Merrill Lynch & Co. analyst Deepak Raj raised his fiscal 1995 and 1996 earnings estimates for the company. Its shares rose $1.625, to $69.875. Scott Paper Co. shared the good news, rising $1.50, to $89.125. Clorox Co. climbed $1.125,to $58.75.
Earlier in the day, International Business Machines Corp.'s decline helped to push the Dow industrials down as much as 26.28, to 4,288.07, its biggest intraday drop since April 7.
IBM shares fell $2.25, to $94.625, after reaching a 52-week high Thursday. The decline came after the Wall Street Journal reported yesterday that the computer company's recovery may be threatened by its dependence on mainframe computer sales, which are expected to dwindle in the coming years.
Two economic reports earlier yesterday signaled that the economy is slowing, but not enough to squelch corporate growth. The Commerce Department first reported that the gross domestic product rose 2.8 percent in the first quarter, less than the 3 percent economists had predicted. Then, the Purchasing Management Association of Chicago said its index increased to 57.6 in April from 55 in March, indicating manufacturing activity is increasing.
The broader S&P; 500 index was up 1.16, to 514.71, its 24th high this year, and a 5.6 percent increase from last month. The index rose 1.2 percent this week. Telephone, auto and health care gained; computer systems, electrical equipment and gold issues lost.
Seven regional Bell telephone companies won approval to offer nationwide long-distance cellular services -- an important step for Bells in their quest to enter the larger $70 billion-a-year long-distance market. Ameritech Corp. jumped 87.5 cents, to $45. BellSouth Corp. rose 62.5 cents, to $61.125.
Chrysler Corp. jumped $1.375, to $43.25, after Kirk Kerkorian said he had hired D. F. King & Co. in New York to solicit proxies from the carmaker's shareholders, possibly setting the stage for a proxy fight between the automaker and the billionaire investor.
The Nasdaq combined composite index rose 3.03, to 843.98, its third consecutive all-time high, after falling 3.5 earlier in the day. The technology-laden index added 2.5 percent for the week, chalking up a 6.3 percent increase in April.
Intel Corp. continued to lead technology shares higher, joined yesterday by Microsoft Corp., which rebounded from yesterday's fall.
Intel posted its fifth consecutive record high. After the market closed Thursday, Intel announced a two-for-one stock split and said it would increase its dividend to four cents a share from
three cents after the split. The semiconductor maker climbed 81.25 cents, to $102.375, after closing above $100 for the first time Thursday.