Dow Adds 14; Small Stocks Surge : Market Overview

Blue chip stocks closed higher, buoyed by bargain-hunting after four straight losing sessions. Smaller stocks paced the rally, resuming their market leadership.

* Interest rates fell after the Federal Reserve executed a long-awaited purchase of Treasury securities. Also, California successfully sold $400 million in new general obligation bonds.

Stocks

The Dow industrials rose 14.05 points to 3,207.37, after losing 47.01 points in the last four sessions.

Meanwhile, smaller stocks rebounded from recent profit-taking. The NASDAQ composite index soared 7.80 points or 1.2% to close at 634.86.

Analysts were encouraged by the power of the small-stock rally, which suggested many investors were eager to jump into those issues after just a minor bout of profit taking.

“We’ve resumed the trend of the troops leading the generals as the (NASDAQ) stocks continue to outperform the Dow,” said Prudential Securities analyst Tony Dwyer.

Rising issues topped losers by almost 2 to 1 on the New York Stock Exchange and by about 12 to 7 on NASDAQ. NYSE volume jumped to 219.08 million shares from Tuesday’s 187.66 million.

Among the market highlights:

* Many industrial issues that have been pounded recently saw renewed buying. Cummins Engine gained 1 5/8 to 71 1/8, Alcoa rose 1 1/8 to 65 1/4, Phelps Dodge added 1 1/4 to 43 1/2, Georgia-Pacific was up 1 7/8 to 56 7/8, and Exxon rose 1 1/4 to 60.

* Technology issues soared after falling back in recent days. Apple surged 2 1/2 to 57 3/4 after saying it will buy back up to 8% of its stock. Elsewhere, Intel zoomed 1 3/4 to 69 1/2, Microsoft jumped 2 to 92, Cabletron Systems rose 1 5/8 to 72, and Motorola gained 2 5/8 to 98.

Also, Hewlett-Packard rocketed 3 3/8 to 58 3/4. Though it reported lower quarterly earnings as expected, analysts said the strength in new orders for H-P’s high-tech equipment was encouraging.

Meanwhile, IBM’s dismal plunge continued. It fell 1 1/8 to 63 1/8.

* Among aerospace stocks, Northrop jumped 1 3/4 to 27 7/8 after research firm Cowen & Co. issued a “buy” on the stock. Also, Lockheed added 1 1/2 to 47 1/2 after winning a $1.9-billion base operations contract at Kennedy Space Center.

* Casino stocks soared. Caesars World jumped 2 to 39 1/4 despite reporting lower quarterly earnings. The firm also announced that it will operate a $20-million Indian casino in Palm Springs. Also gaining were Mirage, up 1 7/8 to 32 7/8, and Circus Circus, up 1 3/8 to 56 1/4.

Also among entertainment stocks, Playboy gained 3/4 to 7 3/4. The firm said its Christmas issue has the most ad pages in 10 years.

* Southland NASDAQ issues joining the small-stock rally included Viking Office Products, up 1 5/8 to 25; Cheesecake Factory, up 7/8 to 27 1/2; computer seller Merisel, up 1/2 to 10 1/2, and health-care firm Homedco, up 2 to 31.

Also, among new NASDAQ issues, Southland-based retailer Sport Chalet priced its initial stock offering at 9 1/4 per share. It will begin trading today.

In European markets, London’s Financial Times 100 index gained 24.8 points to 2,704.0. The Frankfurt market was closed for a holiday.

Credit

Interest rates eased as the Federal Reserve added new demand for Treasury securities, buying for its own portfolio.

The yield on the 30-year T-bond fell to 7.50% from 7.53% Tuesday. Shorter-term yields also dropped.

The Fed announced at mid-afternoon that it would do a “coupon pass,” or purchases on the open market, to counter a seasonal shortage in its own supplies of Treasury securities. The purchase would be of securities maturing after June, 1993.

Jan Hurley, analyst at Chase Securities, said the Fed’s action helped stabilize the market, after several days in which shorter-term yields had risen on worries about future supply of bonds.

The Fed move “just sort of slapped people across the face and said, ‘Hey, things aren’t as bad as they seem,’ ” Hurley said.

The fed funds rate, the rate on overnight loans between banks, fell to 2.75% from 3.00% Tuesday.

Meanwhile, California sold $400 million in new general obligation bonds, the proceeds from which will mostly be used to build higher education facilities. The overall interest rate on the bonds, which mature between 1993 and 2022, was 5.91%, lowest since 1979.

Traders said that despite continuing worries about California’s fiscal health, investors are eager to buy state bonds because their yields are tax-exempt--a feature that will make such bonds even more attractive next year, if federal income tax rates rise as expected.

Other Markets

The dollar finished lower against most major currencies despite a report that the U.S. trade deficit shrank in September--which normally would be good news for the economy and thus the dollar.

“We are seeing a late selloff here,” said Alan Jirkovsky, managing director of foreign exchange at Continental Bank in Chicago. He attributed the late move to internal conditions in the currency market.

In New York, the dollar closed at 123.70 Japanese yen and 1.590 German marks, down from Tuesday’s 124.35 yen and 1.592 marks.

Elsewhere, oil futures continued a downward drift after an industry trade group reported that crude oil supplies had dropped.

Light, sweet crude oil for December settled at $20.19 a barrel, down 7 cents on New York’s Merc.

Precious metals edged higher on New York’s Comex, with gold rising 80 cents to $335.10 an ounce, while silver rose 0.5 cent to $3.76.

Market Roundup, D6