NEW YORK -- U.S. stocks rose yesterday, led by banking and insurance companies, after Warren Buffett's investment company said it will buy insurer Geico Corp. at a 26 percent premium to yesterday's closing price.
The gains also were fueled by a two-day rally in bonds, which pushed yields to their lowest level in more than five weeks. Besides making returns from stocks more attractive than bonds, the lower yields foretell a decline in interest rates. That would improve corporate earnings by lowering borrowing costs and sparking growth.
"Part of the impetus behind the stock market rally has been falling yields," said Steven Goldman, market strategist at Weeden & Co. "As bonds continue to rise [and rates to fall], stocks will break out" of their 3 percent slump of the past six weeks.
J. P. Morgan & Co.'s shares led the Dow Jones industrial average's 20.78-point advance to 4,601.75, its biggest gain in almost two weeks. For the week, the average slipped 16.2, to 4,601.4. Expectations that lower rates will widen J. P. Morgan's profit margins pushed the stock up $1.25, to $71.875. AT&T; Corp., Exxon Corp. and Caterpillar also rose.
And Walt Disney Co. shares reversed a two-day decline, adding 62.5 cents, to reach $56.75, after the entertainment company said it will wrap up at least $5 billion in bank financing for its acquisition of Capital Cities/ABC Inc. in two to three weeks.
AT&T;'s stock, meanwhile, climbed as much as $1, to $54.75. Exxon shares climbed 87.5 cents, to $69.50, and Caterpillar's stock was up 62.5 cents, to $65.
The broader Standard & Poor's 500 index gained 2.64 to reach 560.1, also its biggest advance in almost two weeks. Oil, long-distance telephone and local telephone companies were the biggest advancers, while computer chip, computer and drug issues weakened.
Declines in computer-related shares pushed the Nasdaq composite index to its second-straight loss, falling 0.96 to 1,019.97. The Russell 2000 index of small companies climbed 0.64, to 304.36.
About 1,284 stocks gained and 851 declined on the New York Stock Exchange. The Wilshire 5000 index jumped 21.14, to 5,580.27.
Trading was light, with about 256 million shares trading hands, compared with this year's average of 337.2 million.
Much-watched Berkshire Hathaway Inc., owned by investment guru Warren Buffett, offered to buy the 49 percent of Geico shares it doesn't own for $70 a share, or about $2.3 billion. That brightened investors' outlook on the insurance group, sending American International Group Inc.'s shares up $2, to $78.75, and Chubb Corp.'s stock rose $2.125, $90.50.
Geico spurted $12.875, to $68.625. Berkshire Hathaway shares surged $600, to $25,400.
Shares of Bank of New York Co., Chase Manhattan Corp. and Chemical Banking Corp., among others, climbed as rates fell for a second straight day. The banks earn more when rates decline because the difference between what banks lend money for and the rate at which they borrow money widens.
Bank of New York shares were up $1.25, to $41.125, and Chase Manhattan climbed $1.125, to $53.
Technology shares lagged the advance, following the release of Microsoft Corp.'s new software program Windows 95. Concern that the new software won't trigger a boom in sales for makers of computer-related products weighed down shares of other technology companies. Microsoft shares slipped for a third consecutive day, losing $1.75, to $94.375. International Business Machines Corp. was also one of the biggest decliners, falling $1, to $103.875.
Personal computer distributor Intelligent Electronics Inc. slumped $1.875, to $9.625. The company said it expects to report a second-quarter loss largely because of inventory-related charges.
The bond rally that helped lift stocks gained strength after a report from the National Association of Realtors that home resales increased for a third consecutive month in July, showing the economy might be growing enough to buoy earnings.