Stocks reach record highs after diving Dow plunges 67 points before rebounding to exceed 6,700 mark; Volatility rules imposed; All indexes hit new highs as investors favor cyclical issues

THE BALTIMORE SUN

NEW YORK -- U.S. stocks rallied yesterday after an early dive, sending all major averages to records, as investors wagered that faster economic growth will bolster corporate profits.

The Dow, which fell nearly 70 points soon after the opening, finished the day with a gain of 78.12 points at 6,703.79, beating Thursday's record of 6,625.67. For the week, the Dow average gained 2.4 percent, or 159.70 points.

Prospects for the Dow Jones industrial average's first close above 6,700 appeared remote as a slump in bonds dragged the 30-stock average 67 points lower in the first 15 minutes of trading. By day's end, the average battled back to pass 6,700 four days after crossing 6,600 for the first time.

The swings in the Dow average triggered the NYSE "uptick" rule twice and the "downtick" rule once. The rules limit certain types of computer-guided trades to curb volatility. The first imposition of the rule came in the fastest time since rules were enacted in 1990, just four minutes after the open.

It was only the fourth time that both the "uptick" and "downtick" rules were imposed in a single session, which last occurred on Dec. 16.

The Standard & Poor's 500 index and the Nasdaq composite index also closed at new highs.

The benchmark Standard & Poor's 500 index rose 4.65 to a

record 759.50, bringing its gain for the week to 1.5 percent. The Nasdaq composite index rose 5.82 to a record 1,332.02.

The Maryland stocks index rose, led by Manugistics Group Inc. and Snyder Communications Inc. The Bloomberg Maryland stock index, a price-weighted list of 100 companies with operations in the region, gained 0.57 to 161.53.

Manugistics Group Inc. rose $2.875 to $47.875. Snyder Communications Inc. rose $2.375 to $31.50.

By the end of the day, advancing shares overtook those that fell by 1,273 to 1,235 on the New York Stock Exchange, after being lopsided in favor of declining stocks.

General Motors Corp. and AlliedSignal Inc., companies whose businesses are closely tied to the economy, drove the recovery.

"The economy's growing at a healthy pace, which should be good for corporate earnings," said John Maack, a money manager at Crabbe Huson Group in Portland, Ore., with $4.2 billion in assets. "If you continue to see better corporate earnings, stocks will follow, even if you get a backup in rates."

Yields jumped after the Labor Department said payrolls rose 262,000 in December, 61,000 more than expected in a survey of economists by Bloomberg News. The report rekindled inflation concern, boosting the benchmark 30-year Treasury bond yield 9 basis points to 6.85 percent.

Helping boost shares were reports that investors poured $8.8 billion into mutual funds in the first week of the new year, a stout kickoff to what is traditionally funds' biggest month for new money.

"Fund flow is alive and well," said Crabbe Huson's Maack, "and managers look like they're putting cash to use."

Faring best were companies whose profits can benefit most from quicker growth. Outside of AlliedSignal, leading Dow industrials stocks included Aluminum Co. of America, Caterpillar Inc., Texaco Inc. and Exxon Corp.

Such companies are also known as "cyclicals," because their performance is closely tied to cycles of growth and recession in the economy.

"As rates move higher, the cyclicals would be in a little better position," said Ted Bridges, a portfolio manager at Bridges Investment Counsel in Omaha, Neb., with $800 million in assets. "It would hurt the consistent growers because the investors are valuing a consistent cash flow, and that's worth less over time" as inflation mounts.

Alcoa rose $1.625 to $71.25, Texaco gained $2.375 to $107.375, and Exxon rose $2.875 to 105.75, all record highs. GM gained $1.875 to $61.125.

Oils rallied for a second day. Faster growth bodes well for energy consumption, and prices for crude are near their highest since January 1991.

The Morgan Stanley cyclical index rose 5.88, or 1.5 percent, to 403.64, while its sister consumer growth index rose 0.47, or 0.1 percent, to 341.58.

Signs of a strengthening economy in the final months of 1996 encouraged investors that companies will report robust

earnings. It bolstered their outlook for growth in coming months.

Among consumer companies, Procter & Gamble Co. fell 50 cents to $109.25, and insurer American International Group slid 87.5 cents to $112.375.

Eventually, rising interest rates will translate into costlier home mortgages and other bank credit, slowing sales of expensive goods. As that filters through the economy, corporate profits will suffer.

Meantime, investors said stocks can hold their value. "You're going to have a de-linkage of the stock and bond market," said Charles Henderson, chief investment officer at Chicago Trust Co., with $6 billion under management. "The stock market's going to be subject to earnings announcements."

Early into the profit-reporting period, some companies got a boost.

Motorola Inc. shares rose $1.375 to $66.375 even after the company reported earnings of 39 cents a share, three pennies short of Wall Street forecasts. Traders saw brighter prospects in the 17 percent gain in Motorola's cellular phones sales.

The Russell 2000 index of smaller shares rose to a second-straight high, climbing 0.50 to 366.09 yesterday, and 1.2 percent for the week. The Wilshire 5000 index gained 93.08 on the session to a record 7,462.73, and it rose 1.7 percent for the week.

Pub Date: 1/11/97

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