NEW YORK -- U.S. stocks rallied yesterday for a second time this week amid optimism that the Federal Reserve will cut interest rates later next month, bolstering consumer spending and improving corporate profits.
"With rates falling, it increases the likelihood any economic slowdown will be short-lived," said Scott Swanson, securities analyst at Roger Engemann & Associates, which manages $4 billion in assets. "That's a favorable environment for stocks."
Technology shares paced the advance. Better-than-expected earnings from Broderbund Software Inc. and 3Com Corp. fueled a seven-month rally in shares of computer, semiconductor and software companies. The reports furthered the belief among some investors that this year's biggest winners won't falter even as general economic growth slows.
Investors are betting on "a second industrial revolution, or a more modern one," said Michael Jamison, money manager at $3 billion-asset Brandywine Asset Management.
The Dow Jones industrial average surged 42.54, to an all-time high of 4,589.64, its high for the day and the 40th record this year. It was the 30-stock average's seventh advance in the last nine sessions and the second gain of more than 40 points this week. International Paper Co., Dupont Co., Coca-Cola Co. and Philip Morris Cos. led the index higher.
Shares of International Business Machines Corp. rallied as much as $2, to $99.125, before ending the day up 37.5 cents, at $97.50. The company's proposed acquisition of Lotus Development Corp. cleared a federal antitrust hurdle when the Federal Trade Commission terminated the required waiting period without action.
Among broad market indexes, the Standard & Poor's 500 index surged 7.09, to a record 551.07, its biggest gain since a 9.82-point jump on May 31. So far this year, the index has posted a record in 44 sessions, or about once every three days. Losses in the shares of oil and auto companies offset gains in technology, telephone, drug and beverage issues.
The index's biggest gainer was Coca-Cola, whose shares rose 87.5 cents, to $64.875 -- an all-time high and its ninth straight advance. The company said it expects shipments of beverages to rise in the second quarter by 11 percent to 12 percent. That tops last year's 7 percent gain for the quarter.
The technology-laden Nasdaq composite index rallied 10.90, to a record 940.09, its 14th gain in the last 17 sessions. The index surpassed the 900-point threshold one week ago. Gains in Intel Corp., Microsoft Corp., Oracle Corp. and Cisco Systems Inc. paced the advance. Broderbund jumped $4, to $60.75.
More than two stocks rose for every one that fell on the New York Stock Exchange, where more than 422 million shares traded hands. The three-month daily average is 339.4 million.
Fresh signs the economy is slowing added to speculation that the Fed will lower rates when its policy-making committee meets in early July.
The Labor Department reported jobless claims rose by 20,000 last week, its highest level in 17 months. A slumping economy lowers the chance inflation will accelerate and gives the Fed an impetus to cut rates.
Those prospects sent the price on the benchmark 30-year government bond up 1, or $10 per $1,000 bond. The bond's yield, which moves in the opposite direction, fell seven basis points, to 6.47 percent, the lowest since Feb. 16, 1994.
"The fact that we're getting lower interest rates is a big positive," said Barry Berman, head of trading at Robert W. Baird & Co. Still, "concerns about a slowing economy and corporate earnings" continue to drag on investor optimism.
Major stock indexes and average have climbed 20 percent this year amid optimism that corporate profits will continue to expand and interest rates fall. Recently, though, a growing number of companies have said they won't meet earnings expectations in the second quarter. That means falling interest rates are all that's left to drive stock prices higher.
The Russell 2,000 index of small capitalization stocks rose 1.62, to a record 284.37; the Wilshire 5,000 index, comprising stocks on the New York, American and Nasdaq stock exchanges, surged 62.53, to a record 5,400.86; the Amex market value index rose 1.9, to 495.97; and the S&P; 400 midcap index rose 2.13, to a record 200.16.
Shares of semiconductor makers got a boost from a rosy forecast on chip sales by Texas Instruments Inc. Industry sales could grow more than 30 percent this year and the worldwide market will exceed $130 billion in 1995, said William Weber, vice chairman of Texas Instruments.
Among semiconductor issues, Micron Technology gained $2.125, to $56.875; Intel Corp. spurted $1.72, to $65.375; Advanced Micro Devices Inc. added $1.25, to $36.625, and Texas Instruments was up $2.75, at $140.75.