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Dow recovers from tumble, gains 153 4th biggest point-gain is on heels of biggest point-loss since '87; Technology, drug stocks lead; Market overreacted to Hashimoto's words Monday, analysts say

NEW YORK — NEW YORK -- Remember that big sell-off Monday? Forget it.

A day after the stock market was shaken by the biggest setback of the year, investors went on a frenzied buying spree.

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The Dow Jones industrial average soared 153.80 points, or 2.02 percent, to close at 7,758.06 yesterday, recovering the bulk of the 192 points it plunged on Monday.

The gains were fueled by heavy demand for drug, technology and tobacco shares, many of which had been out of favor a day earlier.

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"What you see here is one of the enduring qualities of this bull market -- to buy the dips," said Richard Cripps, chief market strategist at Legg Mason. "Whatever money poured out of the market yesterday was poured back in today."

Indeed, several analysts said that the market had overreacted Monday to reports that Japanese Prime Minister Ryutaro Hashimoto had threatened to sell U.S. Treasury securities if Washington failed to stabilize the yen-dollar exchange rate.

An aide later said that Hashimoto's remarks had been misinterpreted. And yesterday, Japanese Finance Minister Hiroshi Mitsuzuka said his government had no such plans.

Meanwhile, a chorus of prominent Wall Street analysts argued that the sharp sell-off was unjustified.

"It was a question of shooting first and asking questions later," said Byron Wien, the U.S. investment strategist at Morgan Stanley & Co. "But then when the news cleared, the eternal optimism returned. So we're back to go."

"Go" is nearly 7,800 points on the Dow -- a 20 percent gain this year -- and nearly 900 on the Standard & Poor's 500-stock index. Yesterday, the S&P; 500 rose 17.72 points, also a jump of 2.02 percent, to 896.34.

Such returns have Wall Street in a bullish mood this year, and despite occasional jitters, investors are riding a wave of optimism based on strong earnings, low inflation and stable interest rates.

Yesterday, addressing a conference in New York, Abby Joseph Cohen, the Goldman Sachs strategist, said that the economy had been going in the right direction since 1991, and that she did not see the course altering any time soon.

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There has been a "magic" about this economic expansion, she said, partly because the economy has grown at a moderate pace, and the cycle has lasted so long.

Cohen called the apparent elasticity of this economic expansion the "silly putty cycle" and said that the biggest threat was not from within, but from without.

"The big surprises will likely not come from the U.S.," she said. "The real big swing factors will come from outside. If you're looking for swing factors, look to Japan and Europe."

In the meantime, Cohen is forecasting more of the same in this elongated bull cycle: strong profits, a robust economy and low inflation.

Even though valuations are at historically high levels, she said that the low level of inflation justified higher price-to-earnings ratios.

And judging by yesterday's market, many traders agree. Investors returned to perennial favorites: shares of the multinationals, like Merck and Philip Morris.

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On Monday, all 30 Dow component stocks lost ground. Yesterday, 29 of them gained, led by Merck, up $4.50, to $103.125; IBM, up $4.625, to $91.8125; and Philip Morris, up $1.4375, to $44.1875.

Drug stocks were the day's best performers. The American Stock Exchange's pharmaceutical index rose 4 percent, led by Bristol-Myers Squibb, which soared $8.375 to $84.75 after an analyst said the company might benefit from several recently patented cancer drugs.

Other drug issues also rose sharply. Pfizer rose $4.375 a share, to $115.625; Eli Lilly surged $3.9375, to $109.9375; and Abbott Labs rose $3.125, to $68.

Technology stocks were also strong. Shares of Microsoft rose $4, to $132.0625; Intel was up $2.8125, to $148; and Dell Computer was up $3.5625, to $123.

The technology-heavy Nasdaq composite index also did well, gaining 18.11 points to 1,452.43. The Russell 2,000 index of small-capitalization stocks rose 2.48 points to 393.30.

Yesterday was also the first day that most issues on the New York Stock Exchange could trade in sixteenths of a dollar, rather than eighths. "The systems worked well, and the people did well," said William Johnston, the Big Board's president. "It narrowed spreads to a sixteenth in the most liquid stocks."

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Advancing issues outpaced decliners by a count of about 9-to-5 on the Big Board; volume was heavy, at 554.1 million shares, up from 498.3 million on Monday.

With those gains, all the major indexes are back up in record territory. And though analysts warn that the market could be facing an extended trading range or another downturn, few expect an end to one of the strongest bull markets in history.

"Stocks will move up unabated until investors get hit with something that really scares them," said Joseph Battipaglia, chief equity strategist at Gruntal & Co. "It'll be a bigger issue, such as the economy rolling over into recession. But absent of that, the tendency of the stock moves will be to go higher."

Dow's biggest gains

The Dow Jones industrial average had its fourth biggest point gain yesterday, but was not even close to being among the largest percentage increases. In terms of points gained, here are the best days for the average, including the percentage change in value.

Date ............... Points ..... Close ........ Pct.

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Oct. 21, 1987 ...... 186.84 ..... 2,027.85 ..... 10.1

April 29, 1997 ..... 179.01 ..... 6,962.03 ..... 2.6

April 22, 1997 ..... 173.38 ..... 6,833.59 ..... 2.6

June 24, 1997 ...... 153.80 ..... 7,758.06 ..... 2.0

May 5, 1997 ........ 143.29 ..... 7,214.49 ..... 2.0

April 15, 1997 ..... 135.26 ..... 6,587.16 ..... 2.1

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Dec. 19, 1996 ...... 126.87 ..... 6,473.64 ..... 2.0

Jan. 17, 1991 ...... 114.60 ..... 2,623.51 ..... 4.6

March 11, 1996 ..... 110.55 ..... 5,581.00 ..... 2.0

Feb. 12, 1997 ...... 103.52 ..... 6,961.63 ..... 1.5

Pub Date: 6/25/97


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