Dow Soars 51.74 on Interest Rate Hopes

NEW YORK —  Stocks soared for a second straight session today as hopes mounted that the Federal Reserve will soon cut interest rates and oil prices fell.

The Dow Jones industrial average ended up 51.74 points, or 2%, at 2,540.35. The advance was broadly based, with gaining shares outpacing losers by almost 3 to 1 on moderately heavy New York Stock Exchange volume of 161.39 million shares.

The sharp jump in the 30-share index followed a gain of 44.80 points made Friday as investors bet the Federal Reserve will lower rates--possibly as soon as this week--in an effort to jolt the weakening economy.

Adding to optimism was the belief that war is not imminent in the Persian Gulf, which helped drive oil prices lower.

The price of crude oil for December delivery dropped more than $2 a barrel, to about $31.75 a barrel, in today’s trading on the New York Mercantile Exchange.

“It’s de-escalation of the war premium, the prospect that war might be delayed,” said Ann-Louise Hittle, a senior oil analyst with Shearson Lehman Brothers Inc.

Gainers among the blue chips included International Business Machines, up 2 3/8 at 112 5/8; American Express, up 1 3/4 at 21 3/8; General Electric, up 1 1/2 at 55 1/4, and Philip Morris, up 7/8 at 49 5/8.

Pan Am Corp. rose 1/4 to 1 7/8 in active trading following the weekend news of a conditional bid for Pan Am by Carl Icahn, chairman of Trans World Airlines.

Municipal bonds prices were higher in early trading today, but corporate bond prices were little changed.

Trading was subdued, however, as the market for U.S. government bonds was closed in observance of the Veterans Day holiday.

In earlier trading in London, U.S. Treasury bonds were buoyed by weak oil prices to close with prices firmly higher than levels reached in New York on Friday.

The Fed’s credit easing is likely to spur a one-half percentage point cut in the prime lending rate, and home mortgage rates should decline modestly as well, many analysts said today.

Any reduction in the prime rate, which has been stuck at 10% since January, would be seen as a boost to economic activity because about one-third of all consumer and business loans are tied to changes in the prime.

The Fed’s top policy-making body, the Federal Open Market Committee, will meet behind closed doors Tuesday to map interest rate strategy.

Many economists were forecasting that Fed officials would, at the very least, vote to lower the federal funds rate, the interest banks charge each other on overnight loans.

Some analysts were looking for an even more dramatic signal that the Fed was easing credit conditions in the form of a cut in the Fed’s discount rate, the interest the Fed charges to commercial banks.

There was less consensus on that development, however. The Fed hasn’t reduced its discount rate, 6.5%, in more than four years.