FINANCIAL MARKETS : Market Confidence Propels Stock Gains; Bond Yields Dip

Blue-chip stocks ended with strong gains for the second session in a row Wednesday as the market grew more confident that inflation will not be a threat to the economy for the rest of the year.

The Dow Jones industrial average closed up 15.47 at 3,895.34 after gaining nearly 20 points on Tuesday. In the broader market, advancing issues led declines 1,081 to 1,041 on active volume of 298.53 million shares on the New York Stock Exchange.

Analysts said investors were more willing to buy stocks after the Federal Reserve Board said the economy’s brisk expansion was starting to level off in response to rising interest rates since the start of the year.

In the central bank’s latest “beige book” summary of the business activity, the Fed said consumer spending was waning and the five Fed-engineered interest-rate rises this year were causing sales and construction of new homes to slacken.

The data, which will be used when the Fed next meets on Sept. 27 to consider more interest-rate hikes, comes just one day after news that consumer prices rose by just 0.3% in August, the same as in the previous two months.

“It just shows that (inflation) is still moderate at the consumer level and probably means the Fed is not going to have to raise interest rates anytime soon,” said Bruce Bittles, market strategist at J. C. Bradford.

Traders said some of the market’s activity was attributable to computer-driven program trades prior to Friday’s triple expiration of equity and index options and index futures. They also cited position-squaring ahead of the Yom Kippur holiday on Thursday.

Some analysts said they thought the stock market was showing upside momentum.

Joseph Battipaglia, chief investment strategist at Gruntal & Co., said he thought there was “latent buying power” on Wall Street, built up in recent investor bearishness, that will drive stocks higher.

Meanwhile, crude oil futures tumbled to their lowest point in four months Wednesday as the nation’s refineries churned out increasingly large supplies of heating oil and gasoline.

The October light sweet crude oil contract at the New York Mercantile Exchange settled at $16.71 for a loss of 41 cents a barrel.

In the bond market, interest rates finished slightly lower. The Treasury’s benchmark 30-year bond yield ended the day at 7.67%, down slightly from Tuesday’s 7.68%. Its price ended up 1/8 point, or $1.25 per $1,000, in face value. Prices and yields move in opposite directions.

Among the market highlights:

* American Express rose 1 to 31 5/8 after announcing a stock buyback program. CBS rose 5 1/4 to 343 after the company declared a five-for-one common stock split.

* Compaq Computer Corp. rose 3/8 to 35 7/8. It unveiled a new line of Presario home computers.

* Copley Pharmaceutical tumbled 3 1/2 to 27 on news that it was recalling its Brompheril antihistamine product.

* Centocor rose 1 3/16 to 16. An analyst raised its investment rating on the stock, citing expectations the medical equipment company will report higher earnings.

* Medical device manufacturer Empi Inc. slid 2 25/64 to 8 63/64 after saying net income for the third quarter would be significantly below analysts’ estimates.

In overseas trading, stocks closed down with equities finishing sharply lower in London on interest rate worries. The Financial Times 100-share average ended down 41.6 points at 3079.8. Frankfurt’s 30-share DAX average closed 11.97 points lower at 2,124.12 and Tokyo’s 225-share Nikkei average ended off 126.73 points at 19,919.38.

Mexico City’s Bolsa index finished up 29.81 points at 2,743.15.

Elsewhere, the dollar was mixed in thin, volatile trading, with reports of dollar-buying by central banks giving the greenback some support against the Japanese yen. In New York, the dollar closed at 99.20 yen, up from 98.75 yen Tuesday and at 1.542 German marks, down from 1.544 marks.