NEW YORK -- U.S. stocks rose yesterday as gains in shares of International Business Machines Corp. and Walt Disney Co. raised hopes that a slowing economy won't crimp profits as much as expected.
Shares of IBM gained $1.125, to $90.25, after Lotus Development Corp. accepted the company's sweetened $3.52 billion cash buyout. The acquisition gives IBM control of a key communication software program and another $1 billion in annual sales.
"When you have $10 billion in cash and need a future, taking a chance on something like this is very smart," said Robert Torray, president of Robert E. Torray & Co., which owns about 1 million shares of IBM. "Having $3.5 billion in the bank doesn't do any good."
The Dow Jones industrial average rose 22.47, to 4,446.46, after being up as much as 41.50 points. The gain erased part of Friday's 34.58-point drop. Disney, one of the average's 30 stocks, surged $1.625, to a record $59, amid expectations that the company's new animated film, "Pocahontas," will give a big boost to profits during the next three years. The movie premiered over the weekend.
Broader indexes also gained. The Standard & Poor's 500 index rose 2.94, to 530.88, after being up as much as 4.6, at 532.54. Shares of electric utilities, telephone and computer companies gained, while semiconductor, hospital management and insurance issues fell.
The Nasdaq composite index jumped 3.60, to a record 887.98, led in part by software shares in the wake of IBM's buyout of Lotus. It was the index's seventh gain in the last nine days. Shares of Chiron Corp., Oracle Corp., Amgen Inc., Cisco Systems Inc. and Novell Inc. led the advance.
"The Lotus and IBM situation got things rocking and rolling," said Brett Discher, vice president of equity trading at Dain Bosworth Inc. Among software companies, Lotus ended unchanged, at $62.875; Oracle rose 50 cents, to $37.25; Computer Associates International Inc. climbed $2.625, to $68.125; Novell rose 37.5 cents, to $19.75; and BMC Software Inc. gained $1.125, to $72.50.
The IBM-Lotus alliance hurt one software company: Microsoft Corp. The company's stock fell $1.125, to $83.75, amid concern that the pooled assets of the two companies will be formidable competition for Microsoft. Also, a Justice Department antitrust investigation of Microsoft's proposed on-line service could delay release of its new Windows 95 operating system, analysts said.
About four stocks rose for every three that fell on the New York Stock Exchange, where more than 290 million shares traded hands. The three-month daily average is 337.22.
Merck & Co. led a gain in drug stocks, climbing 62.5 cents, to $48.125. Last week, Merck said the Food and Drug Administration will meet on July 13 to review its osteoporosis drug for marketing approval. Fosamax is regarded as a major new drug with sales potential in the billions. The company's stock was repeated as "buy" at Gruntal & Co. by analyst David Saks.
Shares of Chiron also surged, rising $6.875, to $61.75. A drug the company is jointly developing with Cephalon Inc. slows the progress of Lou Gehrig's disease, according to clinical trials.
Treatments for the fatal muscle ailment, which affects 30,000 Americans, could generate sales of about $300 million to $600 million a year, analysts said. Cephalon's shares rallied $7.875, to $18.375, after trading was halted until noon.
Yesterday's gains recovered much of the ground given up Friday, when stocks suffered their biggest loss in two weeks amid concern that a two-year streak of better-than-expected earnings is coming to an end as the economy cools off. Companies in diverse areas of the economy, from consumer-products maker Rubbermaid Inc. to software maker Banyan Systems Inc., warned that earnings will fall short of investor expectations.
The expectations of a general slowdown were heightened Sunday when U.S. Federal Reserve Chairman Alan Greenspan said that the chances of a "mild recession" in the United States had increased. He also strengthened the case for a cut in interest rates by saying, "there has been success in stemming the acceleration that existed in the economy."
Banks gained as the prospect of lower interest rates lessened the likelihood profit margins will narrow. Shares of Chemical Banking Corp. added 75 cents, to $44.75; BankAmerica Corp. climbed 50 cents, to $51.375; Citicorp advanced 50 cents, to $53; and J.P. Morgan & Co. spurted 37.5 cents, to $70.375.