NEW YORK -- U.S. stocks soared to record highs yesterday, posting their biggest one-day advance in more than three years, amid a big rally for the dollar and optimism the economy may be on the brink of a recovery.
The Dow Jones industrial average jumped 86.46, to a record 4,465.14, its largest one-day gain since Dec. 23, 1991, when it rallied 88 points in response to an interest-rate cut by the Federal Reserve. Since the beginning of the year, the Dow industrials are up 16.5 percent. For the month of May, the average was up 3.3 percent.
The catalyst for yesterday's surge was the perception that the economic slowdown may have almost run its course, analysts said. Two reports showing the economy grew at a revised annual pace of just 2.7 percent in the first quarter and that April new-home sales fell more than expected sparked speculation that the slowdown may be nearing its low point. The economy grew 5.1 percent in 1994's final quarter.
With some economists predicting that growth will grind down to 1.5 percent in the second quarter, food, drug and other consumer-products stocks advanced on the notion their profits will hold up regardless of the economy.
At the same time, shares of retailers, automakers and financial services companies jumped amid optimism the economic slowdown might prompt the Fed to cut interest rates later this year, paving the way for renewed recovery. The last time the Fed cut rates was in July 1992.
Expectations for lower interest rates were bolstered by a surge in the dollar yesterday following central-bank purchases. "Everybody feels that if the dollar is shaping up, interest rates are going to be OK," said Kenneth Ducey, head trader at BT Brokerage Inc. "That created a very enthusiastic marketplace."
The Standard & Poor's 500 index soared 9.83, to a record 533.41, its largest daily advance in almost five years. The previous highs for both the Dow and S&P; 500 were set on May 24. The Nasdaq composite index rallied 5.88, to 864.58, falling shy of a record 879.64 set on May 23.
Twice as many stocks rose as fell on the New York Stock Exchange. About 366 million shares changed hands on the NYSE.
The Dow industrials are approaching 4,500 slightly more than three months after eclipsing 4,000 for the first time.
Laszlo Birinyi, president of Birinyi Associates Inc. in Greenwich, Conn., said conditions are ideal for investing in U.S. stocks. "Interest rates are stable, you don't want to go international, the dollar's stopped going down and corporate profits are going to be good," he said. "What else are you going to do?"
Stocks opened lower amid pessimism the slowing economy would hurt company profits. Prices climbed steadily as the day wore on, drawing in people fearful of missing out on the market's next big move, investors said.
By the final hour, the Dow industrials were up 50 points, triggering the New York Stock Exchange's "downtick" rule curbing stock-index arbitrage at 3:09 p.m. Eastern time.
Five rounds of computer-guided "buy" orders added almost 52 points to the Dow industrials and 5.7 points to the S&P; 500, according to Birinyi Associates.
Drug, beverage and food shares were among the day's biggest gainers. Those and other consumer-prod
ucts stocks rallied on expectations their steady profit growth would buoy them as the economy slows.
Among drug shares, Merck rallied $1.75, to $47; Johnson & Johnson jumped $2, to $66.125; Eli Lilly & Co. rose $1.50, to $74.625; Pfizer Inc. went up $1.75, to $88.25; and Schering-Plough Corp. climbed $1.25, to $78.75. Bristol-Myers Squibb Co. rose $1.25, to $66.25.
In the food industry, CPC International Inc. soared $2.75, to $60.75; Sara Lee Corp. rose $1.125, to $27.875; H.J. Heinz Co. rose $1.50, to $45.50; and Kellogg Co. rose $1.375, to $67.125.
The rally spread to retailers, autos, financial shares and other companies that would benefit if the slowdown could push interest rates lower this year. Semiconductor shares, meantime, stabilized after yesterday's 5 percent plunge.