NEW YORK -- Stocks rallied yesterday, reversing Monday's slide as bond prices surged and better-than-expected earnings reports fueled optimism that corporate profits will continue to exceed expectations into 1996.
Burlington Northern Santa Fe Corp., UAL Corp., Monsanto Co., Digital Equipment Corp. and Boston Chicken Inc. were among companies that surprised analysts and helped major stock averages rebound from a two-day slide.
"On the whole, profits have come through, and that's being reflected in the market," said Thomas Gunderson, money manager at Advantus Capital Management Inc.
The Dow Jones industrial average gained 28.18 to 4,783.66, erasing more than half of yesterday's 39.38-point drop. The advance was fueled by higher prices for Procter & Gamble Co., Aluminum Co. of America and Eastman Kodak Co.
Stocks also got a lift from a surging Treasury bond market, where yields on 30-year bonds tumbled 7 basis points to 6.32 percent, making stocks relatively more attractive compared with bonds and reducing corporate and consumer borrowing costs.
"The bond market is very strong, reviving hopes for a cut in interest rates," said Michael Metz, investment strategist at Oppenheimer & Co. in New York.
The Standard & Poor's 500 index rose 1.50, to 586.56, after two days of losses that drove the index from a record high of 590.65. The Nasdaq composite index advanced 2.32, to 1,039.24, helped most by Microsoft Corp., U S Healthcare Inc., Oracle Corp., Intel Corp. and Adobe Systems Inc.
Transportation stocks posted their biggest one-day increase since mid-July, helped by unexpectedly strong earnings from the recently merged Burlington Northern Santa Fe, the nation's biggest railroad.
The Dow Jones transportation average spurted 45.76, to 1,948.85.
Burlington's shares shot up $5.50, to $82.375, after its unadjusted profit jumped to $1.95 a share from $1.18 a year ago.
Norfolk Southern Corp. jumped $2.25, to $77.875, and CSX Corp. climbed $1.75, to $83.375.
Advancing stocks about matched decliners on the New York Stock Exchange, 1,110 to 1,165, where 415.5 million shares changed hands.