Dow Up 35.58 on Hopes of Lower Interest : Market Overview

Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:

* Stocks lunged into the third quarter with a strong rally on healthy share volume. The Dow Jones industrial average jumped 35.58 points to 3,354.10.

* The Mexican stock market also rebounded, posting its biggest daily gain of 1992.

* Long-term bond yields fell to their lowest levels since Feb. 6, anticipating new cuts by the Federal Reserve. Meanwhile, oil prices rebounded partially from Tuesday’s big drop.

Stocks

The market rallied on the second day of a meeting by Fed policy makers, who are expected to ease credit again soon to help the faltering economy.

Many observers believe that the decision will be influenced heavily by the June employment report, due today from the government.

If the employment numbers point to continued sluggishness in the economy, a Fed rate cut could come quickly, experts say.

The stock rally suggested that many investors have already factored a rate-cut into their market outlook.

Advancing issues topped losers by more than 2 to 1 on the New York Stock Exchange, as volume jumped to 214.25 million shares from 200.98 million Tuesday.

Robert Stovall, president of Stovall/21st Advisers, said institutions sprang into action to snap up bargains among some of this year’s most depressed sectors.

But analyst John Blair at County NatWest said: “I’m not bearish, but I don’t think this is the start of a big rally. The political uncertainty is going to really stall people.”

Among the market highlights:

* Many beaten-down growth stocks found strong new interest. Philip Morris gained 2 1/2 to 76, Pfizer leaped 2 1/4 to 75 1/4, U.S. Surgical added 3 3/4 to 99, Coca-Cola was up 1 1/4 to 41 1/4, Home Depot surged 1 1/2 to 68 3/4, and Gap rose 1 1/4 to 35 3/4.

* Strength in many smaller industrial issues suggested that investors refuse to give up on the idea of a continuing economic recovery. PPG Industries rose 1 7/8 to 67 3/8, Owens-Corning added 1 1/2 to 31 3/4, Briggs & Stratton gained 1 7/8 to 46 3/4, and Superior Industries leaped 3 to 52 1/2.

* Industrial stocks powering the Dow higher included Alcoa, up 1 3/4 to 77 5/8; Boeing, up 1 1/4 to 41 1/8; Goodyear, up 1 1/4 to 69 7/8, and Westinghouse, up 5/8 to 18 1/4.

* Some media and entertainment stocks rose sharply. Caesars World jumped 1 3/8 to 30 1/8, CBS added 3 1/4 to 196 1/4, and Knight-Ridder was up 1 3/8 to 59 3/4.

* Among the losers, GM Hughes plummeted 3 1/4 to 22 5/8 after announcing massive layoffs. Some investors appeared to worry that the firm’s dividend is in jeopardy.

Meanwhile, parent GM lost 1 to 43 as investors figured that GM Hughes’ expected restructuring charges will keep GM from posting back-to-back quarterly profits.

* Santa Monica-based software developer Quarterdeck Office Systems plunged 6 3/4 to 5 5/8--a 55% drop--in the heaviest NASDAQ trading of the day.

The firm said it will earn 3 to 5 cents a share in the quarter just ended, down from 14 cents a year earlier. Quarterdeck blamed the decline on a “substantial” drop in sales of its DESQview software. The firm faces heated new competition from IBM and Microsoft.

Also, Quarterdeck said Director Benjamin M. Rosen resigned to spend more time on the problems at Compaq Computer.

* Another earnings casualty was Calabasas-based Tekelec. The telecommunications-equipment firm’s stock slid 2 3/4 to 10 3/4 after the company forecast weak earnings.

* A likely earnings victim today will be St. Jude Medical. After the market closed, the medical instrument maker said second-quarter earnings will be below analysts’ expectations. It blamed weaker than expected demand in the U.S., Japan and Europe. The stock eased 1/4 to 37 1/2 before the news.

In foreign markets, Mexico City stocks soared on the heels of Wall Street’s turnaround. The Bolsa index leaped 59.65 points, or 3.7%, to 1,658.91. It was the biggest one-day rise of the year.

In Tokyo, slightly easier short-term money rates boosted the Nikkei average 373.34 points to 16,325.07.

But in London, the Financial Times 100-share average finished at 2,493.9, down 27.3 points. It was the first close below 2,500 since the country’s April elections gave the Conservatives a surprise victory.

In Frankfurt, the DAX average rose 3.63 points to 1,756.26.

Credit

The yield on 30-year Treasury bonds fell from 7.78% Tuesday to 7.74% Wednesday, the lowest since Feb. 6. The bond’s price rose $3.75 per $1,000.

Interest rates continued to drop across the board as investors showed increasing certainty that the Federal Reserve will ease credit soon.

A report from industrial purchasing executives that manufacturing growth slowed sharply in June helped sentiment.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.975%, down from 4.250% Tuesday.

Currency

The dollar finished mostly higher, but analysts attributed much of the gain to late short-covering by traders who had correctly forecast the currency’s recent sharp drop.

The purchasing managers’ report had caused renewed dollar selling early in the day. A weak U.S. economy would be expected to make the dollar less attractive relative to other currencies.

Likewise, another U.S. interest rate cut would make U.S. bonds less appealing to foreign investors, giving them more reason to invest in other nations and thus in other currencies.

Late in the day, however, short-covering drove the dollar higher by the close.

It closed in New York at 1.523 German marks, up from 1.522 Tuesday. But the dollar lost more ground against the yen, falling to 125.40 from 125.60.

Commodities

Light, sweet crude oil for August rebounded 26 cents to $21.86 a barrel on the New York Merc, recovering somewhat from Tuesday’s exaggerated 64-cent loss.

On New York’s Comex, August gold rose $1.20 to $345.60 an ounce, and July silver rose 0.1 cent to $4.03.