Dow Rises 39.55 to 2,683.20 on 2nd Anniversary of the ’87 Crash

NEW YORK —  The stock market staged a strong rally Thursday on the second anniversary of the Oct. 19, 1987, crash, with the Dow Jones industrial average rising 39.55 points to close at 2,683.20 after briefly surging above the 2,700 level for the first time since last Friday’s plunge.

Investors were encouraged by better-than-expected inflation figures, and during the day the Dow was up as much as 58 points before profit taking set in. Market analysts also said the strong showing stemmed from an increasing conviction that last Friday’s 190-point drop in the blue chip index was an overreaction. The market had plunged on news that the investor group trying to buy UAL Corp. had failed to get financing for its $6.75-billion offer, raising fear that the climate for corporate takeovers had turned unfavorable.

But Thursday’s rally was propelled in part by movement back into so-called deal stocks. Speculators and institutional investors were reassured when an investor group announced Thursday that it had obtained all of the financing it needs to complete a $1.6-billion leveraged buyout of American Medical International. AMI gained 1.875 to close at 23.625.

“It’s takeover stocks that were leading everything up,” said Kenneth P. Ducey, senior vice president for institutional trading at S. G. Warburg & Co. in New York.

The rally in takeover stocks came despite continued signs of trouble in the junk bond market, where much of the financing for corporate buyouts and acquisitions has been raised in recent years. The initial offerings of at least four issues of junk bonds, totaling $1.68 billion, were postponed this week because of poor market conditions.

Thursday’s mood of renewed optimism for the stock market also had a big impact on over-the-counter stocks, which had their largest single-day rally since Jan. 4, 1988. The NASDAQ composite index surged 7.52 points to close at 470.80. The rise was led by technology and telecommunications stocks, with cellular telephone concerns showing especially strong gains. Analysts said buyers were snapping up bargains in the wake of recent declines in OTC stocks.

The stock market in general was cheered Thursday by news from the Labor Department that consumer prices rose only 0.2% in September. The figures--on top of those from August, which showed no rise at all--provided a strong indication that inflation at least for the moment has been checked. This added to expectations that the Federal Reserve Board would lower interest rates, which almost invariably helps the stock market.

Jack Conlon, executive vice president in charge of equity trading at Nikko Securities Co. International in New York, called it “a good, solid moral victory for bulls” that the market rose on the second anniversary of the 1987 crash, when the Dow plunged 508 points in a single day. He said Thursday’s rally stemmed mainly from “a reassessment of what took place (last) Friday,” adding that “the reaction people had then was just extraordinarily overdone.”

The Dow Jones transportation index, which had been hit hard by the free fall of UAL’s stock and that of AMR Corp., the parent of American Airlines, had its first rally since last week. The transportation index gained 15.64 to close at 1,263.51.

Thursday’s rally leaves the Dow industrial index well above its level of about 2,250 just before the 1987 crash, and not that far from its all-time high of 2,791.41 reached less than two weeks ago.

Abby Joseph Cohen, Drexel Burnham Lambert’s chief investment strategist, said Thursday’s rally was also fueled by strong buying of blue chip stocks by institutional investors, including mutual funds. She said a lot of stock mutual funds, expecting large redemptions by customers after last week’s drop, needed to sell stocks to raise cash; they sold blue chips because the market for these shares could most easily absorb large transactions. Now, Cohen said, “people are re-establishing positions in high-quality stocks.”

International Business Machines, which authorized an additional $1 billion in repurchases of its stock, added 2.375 to 104.125.

Other gainers among the blue chips included Philip Morris, up 1.125 at 44.5; Procter & Gamble, up 0.75 at 128; General Motors, up 0.625 at 45.5; Coca-Cola, up 2.375 at 70.375, and Du Pont, up 1.5 at 115.875.

The Bay Area earthquake continued to have an impact on securities markets Thursday. Options traders from the Pacific Stock Exchange’s offices in San Francisco arrived by chartered jets to set up temporary trading in Chicago, New York and Philadelphia.

The Pacific exchange is the only one that makes a market for stock options of certain big companies, including Hilton Hotels and Compaq Computer. Officials were anxious to have trading in the options resume quickly, since today is the final session to trade or exercise October stock options before they expire. An option is the right to buy or sell a certain stock at a specified price before a specified expiration date.

At the New York Stock Exchange, trading volume Thursday was a moderate 198.12 million shares, compared to 166.90 on Wednesday. Advancing issues outnumbered those that fell by about 7 to 2, with 1,235 up, 355 down and 379 unchanged.

The American Stock Exchange’s market value index closed up 4.74 at 382.81.

In London, stocks rose in a fairly quiet session, with the Financial Times Stock Exchange 100-share index gaining 19.2 points to close at 2,189.3.

Confidence seeped back into Tokyo’s market after it showed its ability to weather a sharp worldwide setback for stock prices early this week. Prices ended broadly higher, with the Nikkei 225-share average up 266.66 points, or 0.76%, to close at 35,374.22.