Financial Markets : Dow Breaks 2,700 in Rally That Fails Just Shy of Record

The Dow Jones industrial index came close to a record high Thursday as a late burst of futures-related buying and a rally in bond prices sent the market sharply higher.

With about a half hour to go in the session, a wave of buying pushed the Dow Jones average of 30 blue chips past the record closing high of 2,722.42 it reached on Aug. 25, 1987. But then it settled back to finish at 2,712.63, up 26.55 from Wednesday.

Advancing issues outnumbered declines by about 7 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 838 up, 653 down and 511 unchanged.

Volume on the floor of the Big Board came to 198.66 million shares, against 209.90 million in the previous session. Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 231.69 million shares.

Most broader market indicators have already surpassed their 1987 peaks in the past few weeks.

Brokers said many investors were waiting for the venerable Dow to join them, however, in a kind of official certification that stocks had fully recovered from the ’87 crash.

At the same time, some traders apparently opted late in the session to use the near-record levels in the Dow as an opportunity to cash in on the market’s recent gains.

Brisk activity in airline issues and other stocks reported or rumored to be takeover candidates helped keep the pot bubbling.

UAL, which said it would explore a wide range of options in light of a takeover bid from investor Marvin Davis, climbed 7 1/4 to 251 1/8. The stock has soared 86 5/8 points this week.

Among other prominent airline issues, AMR dropped back 3/8 to 76 1/2 and Delta Air Lines was unchanged at 79 3/8.

Paramount Communications, widely discussed as a possible acquisition target, moved up 3/4 to 62 7/8.

Elsewhere, Procter & Gamble jumped 5 3/8 to 123 5/8, making a substantial contribution to the Dow Jones industrials’ gain. The company reported higher quarterly earnings.

In Tokyo, the 225-share Nikkei index fell 139.47 points, or 0.40%, to close at 34,719.80 after rising 99.79 Wednesday.

Share prices fell on London’s Stock Exchange as buying interest waned. The Financial Times-Stock Exchange 100-share index ended down 13.1 points, or 0.6%, at 2,347.3.

Credit

Bond prices posted some healthy gains as the government completed its quarterly refunding auctions with the sale of $9.75 billion in new 30-year bonds.

The Treasury sold the new bonds at an average yield of 8.14%, or slightly more than many dealers had been expecting a few days ago.

By the end of the day, prices for 30-year bonds already trading in the secondary market rose more than a full point, or $10 per $1,000 face value, pushing their yield down to 8.05% from 8.14% late Wednesday.

“There was an awful lot of pent-up demand” after the auction, said Elliott Platt, fixed-income research director for Donaldson Lufkin & Jenrette Securities.

He said there was also hope that the July producer price figure due to be released today will “indicate moderate inflation,” giving the Federal Reserve more leeway to loosen its credit policy if the economy weakens.

Some analysts said dealers had been disappointed with the results of the first two stages of the three-part refunding auction, which all told raised a total of $29.5 billion in funds to refinance the government’s debt.

In the secondary market for Treasury securities, prices of short-term government issues rose 1/8 point to 11/32 point higher, intermediate maturities were 1/2 point higher and long-term securities rose as much as 1 1/6 point, according to Telerate Inc., a financial-information service.

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 5.42 to 1,189.59.

The federal funds rate, the interest rate banks charge each other for overnight loans, was quoted at 9%, down from 9.50% late Wednesday.

Currency

The dollar finished higher in domestic dealings after putting in a mixed performance overseas.

Gold prices were mostly higher. On the Commodity Exchange in New York, gold bullion for current delivery rose 40 cents to close at $367.30 an ounce. Republic National Bank of New York quoted a late bid for gold at $366 an ounce, unchanged from Wednesday’s late bid.

Trading was lackluster overseas and in early U.S. dealings amid anticipation of today’s reports on producer prices and retail sales figures for July.

But technical factors triggered successive waves of buying that drove the dollar higher across the board at home.

Volume was moderate. Lou Calvello, a trader at Prudential-Bache Securities Inc., noted that there was “not a lot of depth to the market. People are waiting for the economic numbers to give them direction.”

A rumor swept through the market that the producer price index would slip by as much as 0.4%, contrary to initial estimates of a rise of as much as 0.2%.

In Tokyo, where trading ends before Europe’s business day begins, the dollar rose 0.20 yen to a closing 139.05 yen. Later in London, it was quoted at 139.10 yen. In New York, the dollar rose to 139.80 yen, from 138.95 yen on Wednesday.

In London, the dollar fell against the pound. The pound rose to $1.6280 from $1.6170 late Wednesday. In New York, the pound fell against the dollar, to $1.6188 from Wednesday’s $1.6225.

Gold opened in London at a bid price of $365.75 dollars an ounce, unchanged from late Wednesday. In the afternoon, the city’s five major bullion dealers fixed a recommended price of $366.25.

Silver was quoted in London at a bid price of $5.16 an ounce, up from Wednesday’s $5.15. On New York’s Comex, silver bullion for current delivery rose to $5.163 an ounce from $5.155.

Commodities

A government report projecting smaller corn and soybean harvests than grain traders had expected will likely boost futures prices, ending a monthlong decline in the markets for those commodities, analysts said Thursday.

Grain and soybean futures advanced modestly on the Chicago Board of Trade before the Agriculture Department crop report was released, and much stronger gains were predicted for today.

On other markets, coffee futures prices fell sharply; energy futures rose; precious metals were higher, and livestock and meat futures were mixed.

In Chicago, wheat settled 2 cents lower to 0.75 cent higher with the contract for delivery in September at $3.9575 a bushel; corn was 0.25 cent to 2 cents higher with September at $2.25 a bushel; oats were 1.25 cents to 1.5 cents higher with September at $1.375 a bushel; soybeans were 3 cents to 9.25 cents higher with August at $6.0325 a bushel.

Coffee futures sank on New York’s Coffee, Sugar & Cocoa Exchange amid renewed aggressiveness on the part of producers seeking to increase their share of the recently deregulated market.

Esther Eskanasy, an analyst with Cargill Investor Services Inc., said Colombia, the world’s second-largest producer, had dropped its offering prices by 2 cents a pound on Thursday.

Coffee prices already are at 13 1/2-year lows near 80 cents a pound.

Analyst Kim Badenhop of Merrill Lynch Capital Markets Inc. said prices were likely to fall further.

Coffee settled 2.36 cents to 2.75 cents lower, with September at 79.97 cents a pound.

Energy futures prices climbed on the New York Mercantile Exchange, partly on technical factors and partly on optimism generated by the Energy Department’s weekly supply report, which showed lower-than-expected stocks of crude oil and gasoline.

On New York’s Commodity Exchange, gold settled 20 cents to 40 cents higher, with August at $367.30 an ounce; silver was 0.8 cent to 0.9 cent higher, with September at $5.193 an ounce.