STOCKS : Hopes for U.S. Economy Send Dow Up 16.34

Wall Street stocks closed higher Friday, aided by hopes that the U.S. economy has bottomed but tempered by selling each time an Iraqi missile slammed into its target in the Persian Gulf War.

The Dow Jones industrial average closed up 16.34 points, or 0.6%, at 2,659.41, finishing the week with a net gain of 12.63 points. As had been the trend all week, smaller stocks generally performed better than the Dow: The NASDAQ over-the-counter composite index rose 2.95 points, or 0.8%, to 394.28.

In the broader market, advancing issues outnumbered declines by about 9 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 982 up, 554 down and 464 unchanged.

Volume on the Big Board came to 194.35 million shares, against 223.15 million on Thursday.

“It’s still a nervous market,” said one trader. “We saw a little buying in the same big names, but a lot of traders will want to go home flat.”

This week’s focus shifted somewhat from the gulf and back to the U.S. economy, which investors think might begin to turn up soon after its first recession in eight years.

Stocks got off to a strong start in the morning after the government reported that the economy contracted at a 2.1% rate in the fourth quarter, showing that the early stage of the recession was less severe than expected.

“It seems people are making bets that we’ll be able to snap out of a recession,” said Edward Laux, trader at Kidder Peabody & Co.

While the gross national product data gave Wall Street a boost, investors were not fully immune to the headlines on the course of the war in the gulf.

An Iraqi Scud missile attack on Israel injured 66 people and left one dead. Another person was feared killed in an Iraqi strike on the Saudi Arabian capital of Riyadh.

“We had what we call the ‘Scud selloffs,’ ” said one trader. “With the weekend coming, we don’t know what’s going to happen.”

Still, analysts said they sensed investors were shifting their focus to fundamentals such as earnings.

“People are paying less and less attention” to gulf news, said Alice Sadlo, a vice president at McDonald & Co. “They’re focusing more on earnings. It boils down to the fact that fundamentals have not changed.”

Among the market highlights:

* Many industrial stocks continued to advance, showing that investors were betting the economy will be growing again by summer. Clark Equipment rose 1 7/8 to 27 3/4, Caterpillar rose 1/2 to 46 3/4, Deere was up 1 1/8 to 51 3/8, Parker Hannifin gained 7/8 to 26 1/8 and GE jumped 1 3/8 to 59 7/8.

* Tech stocks also rose further, despite some earnings disappointments. Software firm Autodesk plummeted 11 3/4 to 40 1/4 after forecasting lower-than-expected earnings for the latest quarter. And Texas Instruments fell 3 to 34 5/8 after reporting a $56-million loss for the fourth quarter.

But winners included IBM, up 1 5/8 to 122 5/8, Apple, up 1 3/8 to 53 1/2, Conner Peripherals, up 1/2 to 24 3/4, Micropolis, up 5/8 to 10 7/8, and Archive, up 5/8 to 7 1/4.

* Oil services stocks jumped, rebounding from a recent beating. Halliburton rocketed 1 3/8 to 46 1/4, Baker Hughes gained 1/4 to 24 3/4 and Dresser rose 7/8 to 24.

* Homebuilders showed strength on hopes for lower interest rates. Kaufman & Broad added 3/4 to 11 1/2, Standard Pacific rose 1/2 to 6 3/4 and Centex gained 5/8 to 30 1/2.

* Disney added 2 1/4 to 101 3/4 on relief that its first-quarter earnings weren’t as bad as feared.

* General Dynamics fell 1 1/2 to 27 1/2 as investors took profits on the nearly 50% rise in the stock. Profit-taking also hit engineering firm Fluor, down 3 3/8 to 38.

* BankAmerica gained 1 1/4 to 28 1/4. Shearson Lehman upgraded its rating on the nation’s No. 2 bank and recommended the stock.

In London, the Financial Times 100 index rose 3.70 points to 2,103.00 in mixed trading. In Frankfurt, the DAX index inched up 6.89 points to 1,382.05 in a quiet session. In Tokyo, the Nikkei index gained 304.24 points to 23,573.25 on an absence of bad news from the Persian Gulf.

Credit: Bond prices fell after the government released its better-than- expected GNP report.

The Treasury’s 30-year bond fell 27/32 point, or $8.44 per $1,000 in face amount. Its yield, which moves in the opposite direction of price, rose to 8.22% from 8.16% late Thursday.

Bond traders reacted adversely because the less-severe drop in GNP fanned fears of a turnaround in interest rates soon, said Kathleen Camilli, chief economist at Maria Ramirez Capital Consultants.

Bond investors are expecting the Federal Reserve to continue to lower interest rates to assure that the economy doesn’t go into a freefall. The GNP figure suggested that the Fed could pause in its efforts, but traders also noted that Fed Chairman Alan Greenspan said as recently as Wednesday that the Fed would likely continue to lower rates.

The federal funds rate, the interest on overnight loans between banks, held at 8%, the same level as late Thursday.

Currency: The dollar rose modestly, boosted by the GNP report.

News that Iraq fired more missiles at Israel and Saudi Arabia also helped the dollar, which is considered a safe-haven investment.

In New York, the dollar closed at 1.491 German marks, up from 1.486 Thursday. It also climbed to 132.55 Japanese yen from 132.38 yen.

The dollar received a slight boost from the Iraqi missile attacks, but traders said the reaction was muted because the market has grown used to the attacks.

“The war has taken a back seat even more than earlier this week,” said Walter Simon, vice president of Bank Julius Baer in New York.

Of greater interest was speculation that the U.S. economy’s resilience could keep interest rates in this country up, which would support the dollar.

Commodities: Oil prices slid back as traders found no inspiration in the day’s Persian Gulf War developments.

Among other commodities, precious metals rose, cattle futures continued to rise, pork futures were mixed, cotton futures surged and grains and soybeans were higher.

Oil futures finished mostly lower after news of the Iraqi missile attack on Israel and Saudi Arabia briefly stirred the markets early in the afternoon.

Light sweet crude oil for delivery in March settled at $21.35 per barrel, down 36 cents on the New York Mercantile Exchange. In London, North Sea Brent Blend crude closed at $20 per barrel, down 37 cents on the International Petroleum Exchange.

Home heating oil for delivery in February closed at 69.37 cents per gallon, down 0.45 cent. Unleaded gasoline for delivery in February closed at 62.67 cents per gallon, up 0.07 cent.

Natural gas, which is not as heavily influenced by the war because most domestic supplies come from North America, finished 1.7 cents higher at $1.399 per 1,000 cubic feet for delivery in March.

Gold settled $2.60 higher across the board, with February at $376.10 an ounce; silver was 3.2 cents to 3.4 cents higher, with March at $3.82 an ounce.