NEW YORK -- U.S. stocks rallied to record highs yesterday after International Business Machines Corp. said it would buy Lotus Development Corp. for $60 a share, almost double the software company's market price.
"It's a knee-jerk reaction among investors, who think that if [IBM] is willing to pay this much, maybe the group is cheap," said David Katz, chief investment officer of Matrix Asset Advisors.
Also helping give stocks a boost were expectations for lower interest rates and a rejuvenated economy later this year. As rates fall, economic growth will resume and drive corporate profits higher, traders said.
The Dow Jones industrial average reached an all-time high of 4,476.55, up 32.16. The Dow industrials have now gained 16.7 percent so far this year and are up four of the last five trading sessions.
Also helping to boost the Dow industrials was Boeing Co., which climbed $2.625, to an all-time high of $61.625. The Seattle-based aerospace company won $4 billion of a $6 billion aircraft order from Saudia Airlines, Saudi Arabia's national carrier. So far this year, the stock is up 29 percent. McDonnell Douglas Corp. won the other $2 billion. Its shares rose 12.5 cents, to $73.
United Technologies, one of the two major suppliers of engines to Boeing, saw its stock rocket $2.125, to $77.50. Shares of General Electric Co., the other provider, climbed $1.125, to $57.875.
Broader market measures also set records. The Standard & Poor's 500 Index rose 3.09, to 535.6. Shares of software, drug, aerospace and retail companies were among the biggest gainers. Beverage, computer and tobacco issues fell.
More than two stocks rose for every one that fell on the New York Stock Exchange, where more than 338 million shares traded hands.
IBM's $3.3 billion unsolicited bid for Lotus would result in a "significant" charge for the computer maker, which last year turned a profit for the first time since 1990.
Shares of Armonk, New York-based IBM fell $2.625, to $91.25, as some investors said IBM is paying too much. Lotus' stock skyrocketed $28.94, to $61.44, with more than 29.7 million shares changing hands.
Among software stocks, Microsoft's shares rose $1.625, to $84.75; Novell climbed 62.5 cents, to $19.75; Computer Associates International Inc. gained $1.50, to $65.375; Autodesk Inc. shot up $1.50, to $39.75; BMC Software rose $3.50, to $68.75; and Adobe Systems Inc. jumped $2.50, to $54.50.
The Russell 2,000 Index of small capitalization stocks rose 1.95, to a record 274.22; the Wilshire 5,000 Index, made up of stocks on the New York, American and Nasdaq stock exchanges, rose 32.27, to 5,235.17; the AMEX Market Value Index added 0.87, to 488.71; and the S&P; 400 Midcap Index rose 1.55, to a record 192.99.
The price on the benchmark 30-year bond rose about 37.5 cents, or $3.75 per $1,000 bond, to yield 6.51 percent, down one basis point from Friday. It was the lowest closing yield since Feb. 16, 1994. The bond yielded 7.88 percent at the end of 1994.