Stocks Rally as Fears Ease; Dow Rises 20

NEW YORK —  Wall Street stocks revived their recent rally Wednesday as eased tensions in the Middle East paved the way for a steep fall in oil prices and a rally in bonds.

Nevertheless, the Wall Street advance was limited in scope and reflected resilient nervousness about the market’s overall direction following its large run-up of last month, analysts said.

The Dow Jones industrial average, which surrendered 25.35 points over Monday and Tuesday, recouped most of the loss and closed up 19.93 to 2,566.65. Broader market measurements also gained.

A major source of optimism came from waning fear that Iranian war games in the Persian Gulf would seriously aggravate tensions in the region. That helped depress oil and gold prices, which reduced inflation anxiety in the bond market. As a result, bond prices rose and interest rates fell.

Government bond prices staged what one analyst said was their strongest advance in a month as inflation fears subsided in tandem with a decline in oil futures and precious metals prices. Precious metals serve as a hedge against inflation, and the decline was seen as an indication that inflation fears had subsided for the moment.

Earnings a Factor

Theodore Halligan, an analyst at Piper Jaffray & Hopwood Inc. in New York, said cash-rich foreigners, particularly Japanese and Europeans, were lured to U.S. stocks because of improved corporate earnings and a perception that the dollar will remain steady or strengthen.

“On the negative side, the market has had a run, so it’s susceptible to all sorts of rumors and events,” he said. “Only Allah knows what the Iranians are going to do.”

Gaining issues outnumbered losers by a more than 3-to-2 ratio in New York Stock Exchange composite trading, with 976 stocks up, 606 down and 417 unchanged. Big Board volume totaled 192.72 million shares, compared to 166.49 million Tuesday.

In the bond market, the Treasury Department’s 30-year issue surged nearly a full point, or $10 for every $1,000 in face value. Its yield fell to 8.94% from 9.01% Tuesday.

Corporate and municipal bond issues also rose.

In the secondary market for Treasury bonds, prices of short-term government bonds rose 1/8 point, intermediate maturities were up between point and 1/2 point and 20-year issues rose 6/32 point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.56%, down from 6.87% Tuesday.