FINANCIAL MARKETS : Mexican Stocks Rally; Wall St. Awaits Reports

Mexican stocks posted their biggest one-day gain since mid-July on Wednesday amid expectations of healthy third-quarter earnings. Other foreign stock markets also rose, while the dollar weakened.

However, U.S. stocks ended the session slightly lower, breaking a three-day winning streak, as investors took to the sidelines pending the release of important inflation data this week.

The Mexican Bolsa index soared 75.23 points, or 2.82%, to close at 2,740.82 points, its largest one-day advance since it rose 3.04% on July 22.

“The expectations that third-quarter results will be positive fueled the rise in stock prices,” said Gerardo Copca, an analyst at Valores Finamex SA.

Mexican companies should report an average 5% to 6% increase in third-quarter earnings by the end of October, according to Joaquin Sanchez, an equity analyst at W.I. Carr Indosuez.

In the United States, the Dow Jones industrial average finished at 3,875.15, down 1.68 points, after posting moderate gains for most of the session. The Dow held on to most of a 100-point rally that began last Friday, after a government report showed a moderate rise in September employment.

That report encouraged the view that Federal Reserve would not have to raise short-term interest rates any time soon in order to put a brake on inflation.

“Market watchers have to be very encouraged that the market has given up almost none of its ground,” observed Michael Metz, “It seems to hold on tenaciously to those gains.”

Declining issues edged out advancers by 1,115 to 1,010 on the New York Stock Exchange.

Broad market indexes ended the day mixed. The NYSE’s composite index fell 0.03 points to 256.35. The Standard & Poor’s 500-stock index eased 0.32 points to 465.47. But the Nasdaq composite index rose 2.12 points to 767.69, and the American Stock Exchange’s market value index added 0.74 points to 458.50.

Hampering stocks was a weakening in the bond market, where the 30-year bond yield ended the session at 7.89%, up from 7.86% on Tuesday.

The most important economic reports due out this week are September producer price data today and consumer price data Friday.

Analysts are expecting the CPI to rise 0.2%, with its so-called core rate, minus the volatile food and energy prices, about twice as high. The PPI is expected to rise between 0.1% and 0.2%. Also scheduled for release Friday are September retail sales, industrial production and capacity utilization figures.

William LeFevre, senior analyst at Ehrenkrantz King Nussbaum, said he did not expect the economic numbers will be strong enough to rattle the market or bring a quick increase in interest rates.

Stocks will work their way higher as investors focus on corporate earnings, breaking Wall Street’s tradition of losing ground in October, he said.

Other analysts cautioned that the market was setting itself up for a big tumble if this week’s data showed surprising strength. “The market has worked itself into a no-win situation,” Metz said. “If the numbers are good, the market will be flat, and if not, the market will get hit.”

Among Wednesday’s market highlights:

* The Treasury Department announced a rare bond issue redemption early next year in order to save money. Investors who hold 25-year Treasury bonds issued Feb. 18, 1975, that pay 7 7/8% interest annually and were set to mature Feb. 15, 2000, should offer them for redemption to a financial institution next Feb. 15, when they stop earning interest.

The bonds are being redeemed at par, or face value.

The Treasury estimated it can save $25 million to $35 million by calling the bonds and replacing them with other securities that can now be sold to investors at lower interest rates.

A Treasury spokesman said that, since 1962, this was only the fifth bond that has been called before its scheduled maturity date. Only certain federal bonds can be called early.

* The Dow transportation average rose 9.78 points, or 0.66%, at 1,490.19, following an upgrade of five railroad stocks by Lehman Bros. CSX was up 7/8 at 68 7/8 after Lehman raised it to “buy” from “outperform.” Burlington Northern was up 3/4 at 51, Conrail up 3/4 at 51 3/8, and Norfolk Southern fell 1/2 to 62 1/4. These were upgraded to “outperform” from “neutral.”

Union Pacific was up 1/8 to 50 1/2. Lehman upgraded that issue to “buy” from “outperform,” but the company said it may sweeten its hostile tender offer for Santa Fe Pacific, which had already agreed to merge with Burlington Northern. Santa Fe was up 1/4 at 14 7/8, after Lehman downgraded the issue to “neutral” from “outperform.”

* The dollar weakened against the German mark and most other currencies Wednesday as a pre-election poll predicting a victory for Germany’s ruling party gave the mark a boost. The dollar was worth 1.5422 German marks in Europe, down from 1.5481 Tuesday. In New York, the dollar settled at 1.5410, down from 1.5455.

In Tokyo the dollar closed at 100.15 yen, down 0.45 yen from Tuesday’s close. Later in London, the dollar was quoted lower at 99.90 yen, down from 100.45.