Dow Hits New High as Bond Yields Retreat : Market Overview

The Dow Jones industrial average set a record high Monday while the broader market also rose, helped by falling interest rates.

* Yields on long-term government securities fell for the first time in five sessions as investors adjusted their positions ahead of two important Treasury auctions.

* The dollar continued to march higher as investors fled from European currencies in advance of a German central bank meeting.

Stocks

The market moved steadily higher throughout the day with little real news to fuel the rally, analysts said. Many called it a follow-through from the rally that began on Friday, when the Dow ended 21.52 points higher.

The Dow Jones average rose 20.96 to 3,567.70, eclipsing the previous all-time high of 3,555.40 set last Wednesday.

Advancing issues outnumbered declines by about 8 to 5 on the New York Stock Exchange. Volume on the floor of the Big Board came to 222.58 million shares, up from Friday’s 218.08 million.

Among the best performers were the stocks of companies whose fortunes are closely tied to the economic cycles, such as autos and forest products.

Investors were harboring the same concerns they have had for weeks about corporate earnings, the strength of the economy and interest rates, analysts said.

Still, bond yields, which moved erratically lower, pushing up prices, nudged stocks higher, they said.

Falling interest rates make the potential returns from the stock market more attractive than fixed-income securities such as bonds.

* Several companies reported healthy profits on Monday, including Boeing, Atlantic Richfield and US Healthcare. Boeing rose 7/8 to 38 5/8 and US Healthcare, which trades on the NASDAQ market, jumped 2 1/4 to 52.

* And reflecting cautious optimism about the economy Monday, the so-called cyclical stocks moved higher. General Motors rose 7/8 to 47 5/8, while International Paper jumped 7/8 to 38 5/8.

* In early trading, the market gained impetus from stocks abroad. In Tokyo the 225-share Nikkei average was up 87.51 points to 19,822.08 and Frankfurt’s 30-share DAX average closed at 1,854.52, up 23.69 points. In London, the Financial Times 100-share average closed up 16.5 points at 2,844.2.

* At the American Stock Exchange, the market value index rose 1.71 to 433.76 led by shares of gold mining stocks, including Royal Oak Mines, which jumped 1/4 to 5 1/2. Gold stocks rose with the price of precious metals.

Credit

The bond market gains also reflected a sense that the market may have overreacted to Federal Reserve Alan Greenspan’s testimony on interest rates last week, some economists said.

The Treasury’s main 30-year bond yield fell to 6.67% from 6.70% late Friday. Its price, which moves in the opposite direction, rose 11/32 point, or $3.34 cents per $1,000 in face value.

Short-term Treasury issues were unchanged to 1/16 point higher and intermediate maturities were 3/32 point to 7/32 point higher, the Telerate Inc. financial information service reported.

The gains came in light, choppy trading. Prices opened higher after advancing overseas, where investors sought bargains following last week’s four-session tumble, during which bond prices fell by more than 2 points.

But the market retreated as concerns crept in about whether there will be enough demand to absorb new government notes this week, said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Government Securities Inc.

The Treasury is scheduled to auction $16 billion in two-year notes today and $11 billion of five-year notes on Wednesday.

The market is sensitive about its ability to absorb the new supply after Greenspan told members of Congress, in no uncertain terms, that the central bank was ready to raise interest rates to contain nascent inflation pressures.

Higher rates on new securities would diminish the value of already-sold investments that pay a fixed rate of return, such as bonds and notes.

However, the market began rising again after results of the government’s sale of new three- and six-month bills showed good demand for supply, Ricchiuto said.

The federal funds rate, the interest on overnight loans between banks, was 3.063%, up from 3% late Friday.

Other Markets

The dollar rose half a pfennig against the German mark and edged upward against weaker European currencies that are under attack by speculators. Some investors are betting on a realignment or even collapse of the European Exchange Rate Mechanism, which sets narrow bands in which the European currencies trade against each other.

“People are fearing the whole system looks so unstable that they’d better stay out of ERM currencies altogether,” said Nigel Rendell, an international economist with the James Capel & Co. investment house.

In the United States, trading was reported light Monday as investors waited to see if Germany’s central bank would cut interest rates at its meeting Thursday.

Lower interest rates in a given country prompt investors to sell that nation’s currency, since investments there earn less.

Dollar rates as of 4 p.m. in New York compared to late Friday’s prices: 1.725 German marks, up from 1.720; 5.888 French francs, up from 5.8785; and 106.65 Japanese yen, down from 106.85.

Meanwhile, in commodities trading, analysts said precious metals prices rose in reaction to currency turmoil in Europe and in Russia, where the government and the central bank were struggling over measures to curb inflation.

Gold closed at $393.00 an ounce on the Commodity Exchange in New York, up $3.20 from Friday. Silver for current delivery closed at $5.082 an ounce, up 12.1 cents from Friday.

Light sweet crude for September delivery rose 32 cents to $18.07 a barrel.

Market Roundup, D8