CRISIS IN THE KREMLIN : Markets Soar After Coup Fails : Dow Jumps 88.10, Biggest Gain Since Start of Gulf War

NEW YORK —  Euphoria swept world financial markets Wednesday on news that the coup in the Soviet Union had crumbled, and most markets recouped losses suffered since President Mikhail S. Gorbachev was briefly ousted three days ago.

Stocks in Frankfurt, Tokyo, London and other markets soared, the dollar slumped, oil prices tumbled and grain rebounded.

In the United States, the blue chip Dow Jones industrial average scored its biggest one-day point gain since Western allies launched their attack to liberate Kuwait in January, rocketing 88.10 points, or 3%, to 3,001.79--nearly 33 points higher than its pre-coup close Friday.

The main gauge of smaller U.S. stocks, the NASDAQ composite index, soared 15.92 points, or 3.2%, to an all-time high of 517.97.

“You couldn’t ask for better news from the standpoint of the West or the Soviet Union,” said Mark Melcher, director of Washington research for Prudential Securities, after word spread that Gorbachev was returning to power.

Early today, the rally continued in Tokyo, where the Nikkei stock average shot up 516.45 points to 22,568.05 in early trading, after gaining 364.54 points Wednesday even before it was clear that the Soviet coup had failed.

“The markets were looking for resolution to the Soviet crisis, and they got it,” said Robert L. Kahan, director of trading at Montgomery Securities in San Francisco.

Questions remain over how the Soviet crisis will be resolved and whether there will be disruption to world markets. At the same time, an easing of troubles in the Soviet Union focused attention back on the U.S. economy’s lackluster recovery. And Wednesday, bulls and bears resumed their debate about the direction of stocks.

“Inflation is in check, the economy is recovering moderately, the Fed is friendly and valuations are reasonable. That is a very potent combination,” said Steve Einhorn, portfolio strategist for Goldman, Sachs & Co. in New York.

Einhorn on Tuesday urged clients to boost the percentage of stocks in equity portfolios to 95% from 90%. And he predicted that, even after Wednesday’s surge, stocks will deliver a total return two to three times that of cash over the next six months to a year.

Another bull is David Dreman of Dreman Value Management in New York. “From an investor’s standpoint, the world is a safer and more secure place than it was on Friday,” he said. “If anything, this opens up opportunities for more trade and less tension.”

Bears, however, clung to their arguments.

John Gray, editor of Investors Intelligence, said he doubted the market would follow through strongly on its Wednesday gains. “Most technicians would tell you to disregard market action based on emotion,” he said.

David Jones, chief economist at Aubrey Lanston & Co., argued that “the lingering shock” from the failed coup would persuade Western democracies to pour billions of dollars in aid to Eastern Europe and the Soviet Union.

“That will put pressure on world capital markets, keeping interest rates higher--and stocks lower and economic activity lower--than they would have been,” he said.

Jones also said that, even though the coup failed, Western nations will be less likely to slash defense spending than they would have been and may remain edgy about the reliability of Soviet oil supplies.

Volume on the NYSE was a heavy 233 million shares, and gaining stocks vastly outnumbered losers 1,472 to 255.

Overseas, stocks also soared on events in Moscow. News that coup leaders were fleeing reached the Frankfurt market in the closing minutes of trading. The DAX index closed up 2.9% for the day, rising 43.89 points to 1,570.82.

In London, the 100-share Financial Times index jumped 47.4 points, or 1.9%, to 2,601.9.

In Mexico City, the Bolsa index scored its second-biggest gain of the year, rising 48.12 points, or 4.3%, to 1,176.82.

Among U.S. market highlights:

- Many industrial stocks, hammered in recent days because of worries about renewed economic weakness stemming from Soviet strife, rocketed higher. GM jumped 2 1/4 to 37 1/2, chemical firm Ethyl gained 2 1/8 to 25, Cummins Engine rose 1 7/8 to 38, Fluor was up 3 to 42 3/4 and Du Pont rose 1 7/8 to 48 3/4.

- Defense stocks fell back, but losses were small for most. McDonnell Douglas slipped 1 1/2 to 54, Lockheed eased 3/8 to 45 3/8 and Loral lost 5/8 to 44. Boeing, meanwhile, soared 2 3/8 to 48 1/4 on a huge new jet order. And United Technologies jumped 3 3/8 to 48 after announcing a major cost-cutting program.

- Casino firm Caesars World gained 2 3/4 to 27 7/8 after reporting record quarterly earnings. Disney rose 4 1/8 to 117 after Paine Webber upgraded the stock to “attractive,” citing eased worldwide tensions.

- Smaller stocks helping propel the NASDAQ index to new heights included IDB Communications, up 2 to 11 3/4; Datascope, up 5 1/2 to 83 1/2; Sunrise Medical, up 2 5/8 to 26 3/4, and DEP, up 1 1/4 to 11 3/4.

Credit

The bond market turned sharply mixed, as the collapse of the Soviet coup drove traders back to longer-term issues and away from short-term notes and bills.

The Treasury’s 30-year bond was up 5/16 point, or $3.13 per $1,000. Its yield, which falls when prices rise, slipped to 8.06% from Tuesday’s 8.09%.

But the discount rate on three-month T-bills jumped to 5.28% from 5.11% as traders sold T-bills in favor of other ideas. Money had poured into T-bills as a “safe haven” Monday.

Some analysts viewed the rise in short-term rates as a reaction to the reduced chance that the Federal Reserve will ease interest rates in the wake of the coup’s demise. There had been wide speculation that the Soviet situation would nudge the Fed toward an easing to stimulate U.S. economic growth.

The federal funds rate, the interest banks charge one another for overnight loans, was 7%, up from 5.50% Tuesday. The high rate was attributed to technical factors.

Currency

The dollar plunged against major currencies, returning to more normal levels after the failed coup.

It closed in New York at 1.742 German marks, tumbling 5 1/2 pfennigs from Tuesday’s close of 1.799. It ended at 136.55 Japanese yen, compared to 137.20 Tuesday.

Commodities

Grain and soybean futures prices soared on the Chicago Board of Trade, reflecting hope that the failed coup could result in higher grain exports to the Soviet Union.

Most corn and soybean contracts rose their permitted daily limits of 10 cents and 30 cents a bushel, respectively. Wheat futures rose nearly the 20-cent limit permitted.

Oil prices fell sharply on the New York Merc as fears of a disruption of exports from the world’s largest petroleum producer--the Soviet Union--subsided. Light, sweet crude for delivery in October settled at $21.55 a barrel, down 85 cents.

Precious metals had a mixed day. Gold for August delivery ending $1 higher at $356.90 an ounce on New York’s Comex; September silver fell 0.7 cent to $3.94. Neither had shown dramatic reactions to the coup attempt early in the week.

Market Roundup, D6

For U.S. Stocks, the Coup Was a Wash . . . The Dow Jones industrial average rocketed 88.10 points Wednesday on news that the Soviet coup failed. That left the Dow higher than it was last Friday, before the crisis began. Dow average Fri.: 2,968.02 Mon.: 2,898.03, down 69.99 Tues.: 2,913.69, up 15.66 Wed.: 3,001.79, up 88.10

. . . As It Was for Most Other Markets

Net change, Investment Fri. Mon. Wed. Fri. to Wed. British stocks (FTSE-100 index) 2,621.00 2,540.50 2,601.90 -19.10 points German stocks (DAX index) 1,653.33 1,497.93 1,570.82 -82.51 points Japanese stocks (Nikkei index) 22,814.37 21,456.76 22,051.60 -762.77 points 3-month T-bill 5.24% 5.10% 5.28% +0.04 points 30-year T-bond 8.08% 8.11% 8.06% -0.02 points Gold (Comex) $358.00 $358.60 $356.90 -$1.10 German marks per dollar 1.764 1.824 1.742 -0.022 pfennigs Oil (N.Y. Merc) $21.30 $22.47 $21.55 +$0.25