43.84 Gain, Index’s 8th-Largest : Dow Smashes 2,600 Barrier on Way to Another Record

NEW YORK — Stock prices surged ahead Monday, as an afternoon rally led by blue chips sent the Dow Jones average of 30 industrials well over the 2,600 level for the first time.

The closely watched index, marking its eighth-largest gain, soared 43.84 to close at 2,635.84, a new record. The previous record of 2,594.23 was set last Thursday.

Volume at the New York Stock Exchange totaled 187.20 million shares, compared to Friday’s 212.66 million shares.

Analysts said the market’s upward momentum accelerated amid investor encouragement over the market’s underlying strength in the face of negative news.

A continuing influx of foreign investment and some computerized program trading also played a part, they added.

“This market is steamrolling over every potential problem in the Middle East--such as the Texaco oil tanker that hit a mine--and seems to be polarized on the move upward,” said Eugene Peroni, an analyst at the Philadelphia securities firm of Janney Montgomery Scott. “There is quite extraordinary momentum here.”

Charles Jensen, a technical analyst at MKI Securities, called the rally “rather surprising, because the market is already overextended.”

“We have been getting better-than-usual earnings reports, and I guess that is the dominant reason for what has been going on,” he said.

“Everyone just jumped on the bandwagon,” said analyst Hildegard Zagorski of Prudential-Bache Securities.

The broad-based rally, which was led by the surging technology stocks, gathered momentum in the afternoon as investors snatched up laggard groups, such as bank stocks, that had missed out on previous rallies.

Although the Dow index picked up nearly 12 points in the first half an hour of trading, it had lost all but about three points of that gain by noon.

Analysts attributed the initial surge to the filling of orders by overseas investors that had been awaiting the opening. As that buying subsided, prices were also falling on the bond market, as interest rates moved higher.

When stocks failed to follow into the negative column, traders took that as another sign of the stock market’s underlying strength, since the stock market often follows the bond market, they said.

As the Dow industrials index increased, the ratio of advancing issues to declining issues also widened to about 5 to 2 in the broader market, with 1,153 stocks closing higher, 458 lower and 400 unchanged.

“That’s good, but not great--the pattern for the last three months,” said Newton D. Zinder, an analyst at E. F. Hutton & Co.

Zinder and others said they believed that the market’s strength in the face of adversity was feeding on itself.

“I think the traders were very encouraged, even with the lower bond market--and took it from there,” he said.

Peroni said Monday’s session was characterized by “a lot of foreign activity and a lot of program trading,” referring to the procedure whereby traders use computerized programs to play off differences between futures and their underlying “baskets” of stocks.

Technology issues, pharmaceuticals and banks were among the day’s strong performers.

IBM rose 2 3/8 to 166 3/4; Digital Equipment added 4 1/8 to 175, and Unisys gained 7/8 to 45 3/4. AT&T; climbed 1 to 34 3/4, while General Electric added 1 1/2 to 61 7/8.

Merck picked up 5 1/8 to 196 3/4; Abbott Labs was up 1 7/8 at 64 1/2, and Pfizer rose 1 to 75 1/2.

Hanson Trust led the Big Board’s most active issues at 14 7/8, up 3/8. Citicorp gained 2 7/8 to 63; Chase Manhattan was up 1 1/2 to 42, and JP Morgan climbed 2 to 49 7/8. Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 221.97 million shares.

The NYSE index was up 2.58 to 183.45, its third record in a row. The American Stock Exchange index rose 1.68, to a record 362.74.

In the bond market, prices were depressed by nagging inflation fears and concern over an upcoming Treasury refunding.

The Treasury’s 30-year bond lost 7/16 point, or about $4.38 per $1,000 in face amount. Its yield rose to 8.94% from 8.90% Friday.

Inflation’s Effect

Analysts said recent concern about an increase in inflation was pushing stocks higher and bonds lower.

“It seems that investors, domestic or foreign, are either in cash or in stocks,” said David Jones, an economist with Aubrey G. Lanston & Co.

Jones said higher inflation was a temporary positive factor for stocks, because higher prices can translate into higher corporate profits in the short run. But the environment is bearish for bonds because inflation can dilute the return on fixed-rate investments.

“The general feeling seems to be that the stock market wins,” Jones said.

Analysts said inflation worries have been stirred by the recent volatility in the oil futures market and the decline in the unemployment rate to 6% in July.

Adding to the problems for the bond market was the announcement Monday that the Treasury would auction $28 billion in new notes and bonds this week. The quarterly refunding was supposed to have taken place two weeks ago but was delayed by Congress’ failure to raise the national debt limit.

Although the refunding package was generally in line with the market’s expectations, analysts said the prospect of a supply glut had put a damper on trading.

In the secondary market for Treasury bonds, prices of short-term governments fell about 1/16 point, intermediate maturities declined between 1/16 point and point, and 20-year issues were down about 3/8 point, according to Telerate Inc.

In corporate trading, industrials and utilities were unchanged in light trading, according to the investment firm of Salomon Bros.

Among tax-exempt municipal bonds, general obligations and revenue bonds were unchanged.

Yields on three-month Treasury bills were up 7 basis points to 5.92%. Six-month bills rose 4 basis points to 6.10%, and one-year bills were up 2 basis points at 6.50%.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 6.5%, unchanged from Friday.