Bullish News Doesn’t Faze Bond Traders : Market Overview

* Investors swallowed another batch of good economic news Wednesday but kept their inflation and interest rate fears in check, sending stocks higher in light pre-Thanksgiving trading. The Dow Jones industrial average rose 13.41 points to 3,687.58.

* Yields on Treasury bonds declined despite further news of economic growth. The Treasury’s benchmark 30-year issue eased to 6.30% from 6.31% on Tuesday.

* Crude oil prices dropped as OPEC announced it would take no action to reduce oil production.

Stocks

Stocks rallied despite a government report released Wednesday showing that orders to U.S. factories for durable goods rose a strong 2% in October. While the increase was expected, it still set a record. Durable goods, items expected to last more than three years, are a barometer of manufacturing activity.

That, along with bullish reports on jobless benefits and auto sales, normally would have sent stock and bond prices lower. The stock market has been following bonds lately, so news of a growing economy has usually been bad for both.

Bond investors dislike strong growth because it could prompt the Federal Reserve Board to raise interest rates as a way to keep inflation in control. Higher rates hurt the value of bonds, which pay a fixed rate of return.

But bonds held mostly steady Wednesday and the interest rate on the Treasury’s bellwether 30-year bond posted its second drop in a row.

“The bond market is now adjusting to stronger growth in the economy, and the fear (of higher interest rates) is beginning to subside,” said Carmine Gregoli, chief portfolio strategist for Nomura Securities International Inc. in New York.

Robert Stovall of Twenty-First Securities in New York said the stock market seemed to focus increasingly on the benefits of a growing economy.

“We had some pretty strong economic numbers today, but the market wasn’t worried about inflation, apparently,” he said.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, with 1,209 up, 797 down and 684 unchanged.

The Standard & Poor’s 500-stock index gained 1.33 to 462.36 while the Nasdaq was up 6.36 to 753.18.

Among the market highlights:

* Auto stocks rose on the interest rate stability and on the strong sales reports. Ford gained 1 3/8 to 61.

* Cyclical stocks, which rise and fall with the economy, were also strong. Heavy-equipment maker John Deere gained 3 1/8 to 70 3/4.

* IBM was up 2 to 55 1/8 following a stock upgrade from Smith Barney Shearson. The computer maker was joined by other technology stocks. Compaq gained 1 1/4 to 70 and Intel added 1 1/8 to 60.

* Philip Morris, which announced an 8% work force cut, was up 5/8 to 55 1/2.

* Paramount Communications gained 3 7/8 to 80 1/8 as a Delaware judge stripped it of a key anti-takeover defense, strengthening QVC Network Inc.’s hostile bid for the movie maker and publisher. Viacom, also bidding for Paramount, rose 2 7/8 to 50 5/8, while QVC dropped 1 1/8 to 47 3/4.

Overseas, London’s Financial Times 100-stock index lost 2.1 points to 3,067.2, Frankfurt’s 30-share DAX index increased 2.14 points to 2,029.55, and Tokyo’s Nikkei average closed at 17,067.11, down 317.73 points.

Credit

Prices soared early Wednesday as investors reacted to a survey by the University of Michigan that showed a slight drop in consumer confidence in November. That eased worries that stronger economic growth will lead to more inflation, which can hurt the value of fixed-income securities.

But the market gave up most of the early gains amid the data on durable-goods orders, jobless claims and auto sales that seemed to affirm sentiment that the economy is rebounding.

But negative reaction to the data was subdued. Analysts said the bond market’s ability to largely sustain day-earlier gains indicated a meaningful rebound from the monthlong price plunge that ended Monday.

The price plunge drove up 30-year bond yields more than half a percentage point since mid-October.

“I think the worst of the blood bath is really behind us. The selling has really been overdone,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.

David Ader, a market strategist at Technical Data in Boston, said investors are buying bonds again because there are few other places to park their money in today’s low-interest-rate environment.

“I would not characterize today as your typical thin, nothing’s-going-on holiday trading,” Ader said.

The price of the Treasury’s main 30-year bond, which jumped more than a point Tuesday, rose another 1/16 point, or 63 cents per $1,000 in face value.

Yields on three-month Treasury bills were unchanged at 3.17% as the discount held at 3.11%. Six-month yields were unchanged at 3.35% as the discount held at 3.26%. One-year yields held at 3.58% as the discount stayed the same at 3.45%.

Yields are the interest bonds pay at maturity, while the discount is the interest at which they are sold.

Other Markets

OPEC’s decision not to reduce oil output surprised analysts. The 12-nation Organization of Petroleum Exporting Countries had been expected to further limit production--at least slightly--in order to lift prices from near three-year lows.

Light, sweet crude oil for delivery in January, which fell 47 cents Tuesday, fell 25 cents to settle at $16.38 per barrel on the New York Mercantile Exchange. Analysts said prices were down another 25 cents in after-hours trading.

Frank P. Knuettel, an energy analyst at Prudential Securities Inc., said OPEC’s lack of action comes with “world inventory too high, demand too weak. The whole thing doesn’t sound like a good prescription to me.”

“The fact that they didn’t do anything is a negative. They didn’t even try to shore up the price. So they did absolutely nothing,” Knuettel said.

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Also Wednesday:

* The dollar finished mixed against other currencies in light trading. Currency traders said the market shrugged off the reports of a strong economy. In New York, the dollar finished at 108.18 yen, down from 108.66 on Tuesday.

* Gold prices were mostly lower. On New York’s Commodity Exchange, gold for current delivery closed at $377.20 an ounce, off 10 cents.