FINANCIAL MARKETS : Markets Start ’96 With Bang as Dow Soars 60

AT&T; Corp.’s announcement of massive job cuts boosted investors’ confidence that corporate profits would continue to rise strongly, sparking the Dow Jones industrial average on Tuesday to post its biggest one-day point gain in seven months.

The Dow climbed 60.33 points, or 1.18%, to 5,177.45 as investors returned to the market after after the holidays. It was the Dow’s biggest gain since its 86-point rise on May 31.

“Earnings may well be better at the end of the year than people expected,” said Mark Cremonie, of Merchants Capital Management Inc. He and other analysts cheered AT&T;’s plan to cut 40,000 jobs. While the cut means pain for workers involved, it signals that there is room for companies to continue restructuring and downsizing, which helps their bottom lines.

AT&T; stock, the most widely held among U.S. shareholders, rose 2 5/8 to 67 3/8.

The stock market also jumped on news from the nation’s purchasing managers that manufacturing slowed for the fifth consecutive month in December, raising prospects that the Federal Reserve Board will lower interest rates soon to stimulate the economy.

“AT&T;’s news cast a positive light on the stock market today. It’s an important Dow component and I think that coupled with sort of mediocre purchasing managers’ data gave the feeling there’s plenty of room for restructuring out there,” said Charlie Crane of Spears Benzak Salomon & Farrell.

Markets in Latin America and much of Europe also started the year strongly, as did prices of oil, gold, silver and other precious metals.

But the bond markets are still nervous about the budget battle in Washington, with the yield of the Treasury’s main 30-year bond rising to 5.96% from 5.94% on Friday.

In the broader stock market, advancing issues led decliners 1,570 to 901 on the New York Stock Exchange. The Standard & Poor’s 500 index rose 4.80 points, or 0.78%, and the Nasdaq composite index rose 6.52 points to 1,058.65, or 0.62%.

“It’s a nice way to start the year but I’d emphasize the Dow is doing a lot better than the rest of the market. It’s a blue-chip rally,” said Crane, a director of research.

Nonetheless, “the public is coming into this market with both feet by way of mutual funds, IRAs and 401(k)s,” said Ricky Harrington, senior vice president at Interstate-Johnson Lane in Charlotte, N.C.

Portfolio and fund managers are playing it conservative, investing in blue chips because they’re concerned about a correction, Harrington said. “It’s easier to explain why you bought Coke instead of some small electronic company in the Southwest.”

Seasonal factors also helped the markets. Pension and profit-sharing funds are making their traditional start-of-the-year investments of member contributions.

Also influencing the market, but to a lesser extent, are “tax loss sellers.” These are investors who sold money-losing stocks late last year to offset the tax bite from their winning investments. Now that January is here, they are looking to reinvest the cash they generated from those sales.

Among market highlights:

* Other than AT&T;, other blue-chip winners Tuesday were Walt Disney, which gained 2 to 60 7/8 after an analyst at Robertson Stephens raised the brokerage’s rating on the stock. General Electric rose 1 1/2 to 73 1/2 and Philip Morris gained 1 5/8 to 91 7/8 after it and four other tobacco companies submitted a joint statement to the Food and Drug Administration, arguing that the FDA is exceeding its legal authority by planning to restrict cigarette advertising and ban vending machines. Cyclical gainers included International Paper, up 1 1/4 to 39 1/8 and Alcoa, up 1 1/2 to 54 3/8.

* Some high-technology stocks were pressured somewhat by Silicon Graphics’ warning that fiscal second-quarter profits would fall short of expectations. It said revenue growth in North America and Europe did not meet its expectations. The stock topped the NYSE actives list and shed 4 5/8 to 22 7/8.

Also, Digital Link shed 5 1/2 to 8 5/8 after warning fourth-quarter results would fall short of Street expectations.

Among other technology stocks, Microsoft rose 2 to 89 3/4. CS First Boston named Microsoft its featured stock of the week. Texas Instruments lost 3 1/8 to 48 5/8 after Merrill Lynch cut its 1996 earnings estimate, citing the company’s failure to negotiate new patent licenses with key licensees. Merrill also sees slower semiconductor market conditions and lower pricing for memory chips.

* Sears added 1 1/2 to 40 1/2. Merrill upgraded the stock to “buy” from “above average” due to its strong holiday sales.

* Pharmacopeia added 4 1/4 to 28 1/2. Alex. Brown started coverage with a strong “buy.”

* Gymboree lost 2 1/8 to 18 1/2. Alex. Brown cut the stock to “neutral” from “buy.”

The dollar ended mostly higher against leading currencies in quiet dealings, strengthening as the Japanese yen came under pressure in Europe.

“There’s a general preference for higher yielding currencies and the feeling is that Japanese interest rates will not go up soon,” said Margaret Kudarauskas, senior foreign exchange analyst at Technical Data in Boston. The Japanese did not participate Tuesday, as their markets remain closed until Thursday for the New Year holiday.

Heating oil and natural gas prices took up ’96 where they left off last year by rallying as trading resumed at the New York Mercantile Exchange after the weekend.