Falling Yields Boost Stocks; Dow Adds 46

The bond market took heart Wednesday from economic data suggesting slower growth ahead, and that helped bolster stock prices.

The Dow industrials gained 46.98 points to 5,528.91 and the broad market got a boost as well, as Wall Street looked forward to more significant economic data today.

In the bond market, the yield on the bellwether 30-year Treasury bond fell from 7.03% on Tuesday to 6.96% on Wednesday, the lowest since July 18. Shorter-term yields also declined.

Bonds’ rally was triggered by a weaker-than-expected report on Midwest manufacturing activity in July from the Chicago-area Purchasing Management Assn.

The group’s index of activity fell to 51.2 in July from 53.3 in June, suggesting manufacturing is expanding, but at a slower pace.

The Chicago survey is often monitored for clues on what the widely watched national survey of purchasing managers will show. That survey will be reported today.

“The signs are that the economy is not running away, so the onus is not on the Federal Reserve to make a move on interest rates in the near term,” said Art Hogan, head of institutional equity trading at Dean Witter Reynolds.

Fed Chairman Alan Greenspan told Congress recently that this week’s economic data would be key as the central bank evaluated whether to tighten credit to slow the economy and keep inflation subdued.

Bond buyers Wednesday were betting that the national purchasing managers’ report today, along with the government’s report on second-quarter economic growth (also due today) and the July employment report (due Friday), will be weak enough to mollify the Fed and allow bond yields to fall.

“For now, the bond market’s worst fears aren’t being met,” said Tony Crescenzi, head of fixed-income trading at Miller, Tabak, Hirsch & Co. in New York.

And as bond yields decline, that is clearly good news for the stock market, which was hammered in July by interest rate concerns and by worries about slowing corporate earnings growth.

Winners topped losers by 16 to 9 on the Big Board on Wednesday, by 22 to 16 on Nasdaq. The Nasdaq composite index rose 8.64 points to 1,080.59, and trading volume picked up significantly from the low levels of recent days.

Still, most stock indexes lagged the blue-chip Dow’s 0.9% gain, as investors continued to play it safe by sticking with big-name stocks.

Meanwhile, the dollar slid to a five-month low against the German mark and a two-month low against the Japanese yen as more currency traders saw hopes for higher U.S. interest rates dim.

The dollar’s fall, to 1.472 marks and 106.77 yen, also helped trigger a sudden rally in gold, as currency traders looked for a short-term haven. Near-term gold futures on the Comex rose $3.10 to $387.50 an ounce.

Among Wednesday’s highlights:

* The Dow’s gain was powered by GE, up 2 1/8 to 82 1/4; Caterpillar, up 1 3/8 to 65 7/8; and Philip Morris, up 1 5/8 to 104 5/8.

* Biotech stocks surged after Monsanto said it will raise its stake in Calgene. Calgene jumped 1 5/16 to 6 3/16, Biogen leaped 2 1/8 to 61 1/8, Chiron added 2 to 88 and Columbia Labs gained 1 to 11 1/4.

* Telephone stocks were higher ahead of an expected federal decision to open local phone markets to more competition. AT&T; gained 1 1/4 to 52 1/4, MCI surged 1 to 24 5/8 and Sprint was up 7/8 to 36 5/8.

* Defense stocks were broadly higher. General Dynamics rose 1 1/4 to 64, Raytheon jumped 1 3/8 to 48 1/2 and Logicon added 3/4 to 27 7/8.

* Some financial issues were bolstered by lower interest rates. Merrill Lynch jumped 1 7/8 to 60 3/8. Wells Fargo added 3 5/8 to 232 7/8.

* Gold issues gained as the metal’s price rose. Barrick Gold jumped 1 1/4 to 27 7/8, ASA zoomed 1 7/8 to 40 3/4 and Newmont Gold rocketed 3 3/4 to 50 7/8.

In foreign trading, Tokyo shares continued to descend, with the Nikkei-225 index falling 0.9% to 20,692. But Paris stocks rebounded, with the CAC-40 index gaining 1.4%. In Mexico City, the Bolsa index rose with U.S. stocks, adding 20.35 points to 3,007.24.

Market Roundup, D6