Stocks Rally to New Highs; Yields Decline

Stocks rallied Monday as long-term bond interest rates fell to the lowest levels in nearly 20 months amid a pullback in oil prices.

The Dow Jones industrial average, which has lagged the broad market rebound from August’s slide, rose 61.64 points to 8,100.22, bringing this year’s gain back above 25%.

Other popular stock indexes moved further into record territory as bonds extended a nearly month-long rally. Advancing issues outnumbered decliners by nearly a 5-to-3 margin on the New York Stock Exchange in moderate trading.

As bond prices rose, the yield on the 30-year Treasury bond fell as low as 6.24% before settling at 6.26%, its lowest finish since the 6.16% of Feb. 16, 1996. The long bond yield was at 6.29% on Friday.

Monday’s gains in the bond market followed a tumultuous session Friday, when bonds soared after a government jobs report suggested the economy may be losing steam, then slumped amid concern rising oil prices might trigger inflation. Oil prices fell as worry eased that political and military tension in Iraq and Iran would lead to a disruption of the flow of oil from the Persian Gulf.

The employment report showed the economy added fewer jobs than expected last month, while hourly earnings barely budged. The results persuaded investors the economy won’t expand fast enough during the rest of the year to drive prices much higher.

“I don’t see any problems with inflation,” said Richard Schwartz, who oversees $21 billion in bonds for New York Life Asset Management in Parsippany, N.J.

Investors’ jitters over tensions between Iran and Iraq subsided Monday and they focused on upcoming third-quarter earnings.

On the New York Mercantile Exchange, oil for November delivery ended down 83 cents at $21.93 a barrel, down from Friday’s $22.76.

Broad market stock indexes extended their runs into record ground. The Nasdaq index rose 6.04 to close at a new high of 1,721.91.

The Standard & Poor’s 500 list closed at a new high for the third-straight session after a two-month drought, gaining 7.6 to 972.69. And the Russell 2000 index of smaller companies set a record for the sixth-straight session and 23rd time in 28 sessions. It finished up 2.18 to 461.70.

The NYSE Composite index rose 4.01 to a record 509.70.

Reflecting the bullish market tone were strategists at Lehman Bros., who raised stocks in the firm’s recommended U.S. asset allocation to 75% from 65%, cutting bonds to 25% from 35%.

“We’re not saying that we won’t see bumps along the way,” said Arun Kumar, senior U.S. equities strategist at Lehman. “But looking through ‘til the end of next year, we think stocks are the place to be.”

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Among Monday’s highlights:

* Financial companies, whose lending businesses and other operations thrive when interest rates grow more enticing, led the advance. The Dow’s biggest gainers were Travelers Group, up $2.75 to $74.44, and J.P. Morgan, up $2.31 to $121.81. Elsewhere on the NYSE, Chase Manhattan rose $2.31 to $124.94 and BankAmerica climbed $2.44 to $80.50.

* The technology sector posted modest gains despite the latest in a stream of profit warnings.

Silicon Graphics tumbled $8.81 to $18.06 after it said weak sales of its computer servers had hurt its results. As did Kulicke & Soffa Industries, off $7.81 to $39.31; Alliance Semiconductor, down 63 cents to $8.88; and software developer Clarify, down $1.13 to $14.38.

But 3Com jumped $3.19 to $54.25 on analysts’ positive growth forecasts.

Also, Digital Equipment surged $4 to $48.75 amid speculation that the computer company may sell its Alpha microprocessor technology to Intel for $1.5 billion. Intel rose 19 cents to $93.50.

* Oil shares gained on the price of crude fell. Exxon climbed $1.50 to $66.69; Chevron jumped $1.94 to $87.81; and Mobil added $1.63 to $76.44.

Occidental Petroleum jumped $3 to $29.81 after the company won an auction to buy the government’s share of the U.S. Naval Petroleum Reserve for $3.65 billion.

* Southland firm Tarrant Apparel Group fell $1.25 to $13.50 as the maker of women’s clothing said it sees a decline in gross margins to about 14% in the third and fourth quarters.

Overseas, Indonesian President Suharto called an emergency meeting with his top economic ministers and the central bank chief after the country’s currency, the rupiah, crashed to another record low Monday.

After the meeting, State Secretariat Minister Murdiono told reporters the government would announce within the next few days what steps it would take to ease pressure on the besieged currency.

The rupiah dropped 5.2% in morning trading Monday, falling to 3,862 rupiah against the dollar, after shedding about 8% on Friday. It rebounded to settle at 3,717.50 after Indonesia’s central bank intervened on its behalf, dealers said.

Elsewhere overseas, Tokyo’s Nikkei stock average rose 1.0%, Frankfurt’s DAX index rose 0.7% and London’s FTSE-100 fell 0.6%.