Stocks hot as economy cools down

NEW YORK — NEW YORK -- U.S. stocks rallied to record highs yesterday amid confidence that a slower-growing economy would keep inflation under control while letting corporate earnings expand.

Stocks also got a boost from optimism that the dollar's drop against major currencies would keep U.S. exports competitive, bolstering the outlook for multinational companies such as the Coca-Cola Co., traders said.


Speculation grew that the economy might be weakening enough to push down interest rates in the second half of 1995, after a government report Friday showed a rise in the unemployment rate. That thinking benefited automakers, insurers, banks, homebuilders and paper producers, whose profits rise when rates fall.

"The psychology seems to have shifted back toward lower rates," said Joseph DeMarco, managing director in equity trading at HSBC Asset Management, a unit of Hongkong & Shanghai Bank, which manages more than $4 billion in assets. "The economy might be slowing, but it won't be weak enough to affect earnings."


The Dow Jones industrial average jumped 40.47 to a record 4,383.87, its biggest one-day gain since it rose 44.27 on May 3 to its previous closing high.

The surge more than recouped Friday's 16.26-point drop. Gains in International Paper Co., J. P. Morgan & Co. and Aluminum Co. of America outweighed losses in United Technologies Corp., Minnesota Mining & Manufacturing and Union Carbide Corp.

The Standard & Poor's 500 index rebounded to close up 3.84 at a record 523.96, eclipsing its old high of 520.54 set last Wednesday. The index opened down as much as 0.98, after falling 0.42 on Friday.

zTC The Nasdaq composite index rose 5.76 to 849.29, falling shy of its record close of 850.26. The index dropped 3.21 on Friday.

Much of yesterday's surge came after Friday's jump in the bond market fueled by expectations for slower economic growth. Those expectations were reinforced by Friday's report from the Labor Department that said the U.S. economy lost jobs for the first time in more than two years last month and the unemployment rate jumped to 5.8 percent from 5.5 percent.

The report touched off the biggest one-day rally in the bond market since last August, driving the yield on the benchmark 30-year Treasury bond as low as 7.00 percent, its lowest since March 1994. The yield closed near 7.03 percent yesterday.

"Obviously, the economy is slowing down," said Jim Benning, equity trader at BT Brokerage Inc. Tempering that confidence was skepticism that the Fed would cut interest rates as long as the dollar was falling against the yen and mark, traders said. A breakdown in U.S.-Japanese trade talks on autos hurt the dollar yesterday.

The market could retreat later this week, when a series of Treasury sales and more economic releases take place. The Labor Department is scheduled to report producer and consumer prices for April on Thursday and Friday.


In all, 15 stocks rose for every eight that fell on the New York Stock Exchange yesterday.

Trading was slower than usual because of holidays in London and Paris, with about 292 million shares changing hands on the Big Board, below the three-month average of 334 million.

The Russell 2000 index rose 1.39 to a record 267.01, the S&P; mid-cap 400 index gained 0.83 to 185.95, the Wilshire 5000 index rose 31.35 to a record 5105.26, and the American Stock Exchange market value index rose 0.32 to 482.94.

Intel Corp. jumped $3 to $111.625, helping pace the rally along with General Electric Co., which rose $1.125 to $58.50; Coca-Cola, up $1.25 at $60.75; American International Group Inc., up $3.75 at $112.25; Procter & Gamble Co., up $1.25 at $71.625; and General Motors Corp., up $1 at $43.50.

"For the first time in two or two-and-a-half years, everybody thinks the next move by the Fed will be to ease rather than tighten" credit, said Todd Clark, managing director in equity trading at Rodman & Renshaw Inc. "If the Fed is in an accommodative mode, that would be very healthy for stocks."

Beneficiaries of lower rates include Ford Motor Co., which rose 25 cents to $26.75, and Chrysler Corp., which added 37.5 cents to $42.375. International Paper Co. soared $2.25 to $78.625, and Willamette Industries Inc. vaulted $3 to $51.25.


Homebuilders were a winner for a second day. Continental Homes Holding Corp. climbed 12.5 cents to $15.375, after gaining $1.125 on Friday, and Lennar Corp. rose $1.75 to $19.875, extending Friday's 1-point rise. Centex Corp. surged $2.625 to $29.125.

Technology shares were another bright spot amid expectations for more than a 30 percent worldwide revenue growth in the semiconductor market this year, analysts said.