FINANCIAL MARKETS : Blue Chips Extend 4-Day Run

Market Overview

A roundup of Tuesday’s market activity, compiled from staff and news service reports:

* Blue chip stocks extended their winning streak to a fourth session, buoyed by gains in banking shares and record earnings at Merrill Lynch & Co. The Dow industrials rose 15.94 points to 3,444.03.

* The bond rally faded, as long-term interest rates closed only slightly lower after a disappointing Treasury sale of seven-year notes.

* Early today, the Hong Kong market rocketed to a new high after Britain and China agreed to resume talks on the colony’s future. The Hang Seng index was up 323.67 points, or 5%, to 6,741.88 in morning trading.

Stocks

Though stocks’ advance slowed from Monday’s 31-point Dow gain, a number of major indexes still hit new highs.

The Dow transportation average, for example, closed at a record 1,660.52, up 11.68 points.

Advancing issues outnumbered declines by about 7 to 4 on the New York Stock Exchange. Volume came to 286.7 million, up from 261.5 million Monday.

The market shrugged off a disappointing report on March retail sales, which was in large part attributed to the bad weather during the month in much of the country.

Wall Street sentiment was helped by a broad advance in stock prices overseas.

In Tokyo, the Nikkei index soared 858.15 points, or 4.3%, to 20,740.29 overnight after the government approved a 13.2-trillion yen fiscal stimulus package. (At midday today the Nikkei was flat.)

In London, the Financial Times-100 index rose 25 points to 2,846.8, and in Frankfurt, the DAX index gained 15.32 points to 1,671.05.

Among U.S. market highlights:

* Strong first-quarter earnings reports drove several key stocks higher. Merrill Lynch, for example, rocketed 5 1/8 to 76 5/8 after reporting results well above analysts’ expectations, thanks to the continuing bull market.

Other brokerage stocks soared in sympathy. Morgan Stanley rose 2 5/8 to 64 7/8, PaineWebber jumped 1 3/8 to 27, and Charles Schwab zoomed 1 7/8 to 37 1/2.

* CBS Inc. also surprised analysts with a better than expected quarterly report, sending its shares up 7 1/8 to 237 1/8. Capital Cities/ABC added 7 1/4 to 546 3/4 on the news.

* Conglomerate Tenneco leaped 3 1/2 to 48 3/4 on its quarterly report.

* In a possible sign of the market’s fading interest in consumer stocks, however, Coca-Cola lost 1/4 to 39 1/8 despite reporting strong earnings.

* Among technology issues, Intel couldn’t hold on to its big rise of Monday, when it reported a huge earnings gain. The stock fell 4 7/8 to 112 5/8 after rising 4 1/2 on Monday.

* Banking stocks were stars for a second day, helped by optimism about continuing low interest rates. Chase Manhattan rose 1 to 37 5/8, BankAmerica surged 1 1/4 to 52 3/4, BancOne gained 1 to 61, and NationsBank added 5/8 to 57 5/8.

* Home Shopping Network plunged 1 1/8 to 5 5/8. Over the weekend, Liberty Media withdrew its $642-million offer to buy control of the company.

Credit

The price of the Treasury’s main 30-year bond was up 5/32 point, or $1.56 per $1,000 in face value. Its yield, which moves in an opposite direction from price, slipped to 6.78% from Monday’s 6.79%.

Participants described trading as erratic, with yields falling early on, then climbing.

The Commerce Department’s report that retail sales fell 1% in March, the second consecutive decline and the worst in more than two years, should have driven bond yields down because the news signaled a weaker economy.

Retailers haven’t reported such a sharp decline since January, 1991, in the midst of the recession. It brought the level of sales to the lowest in six months. Analysts had anticipated March sales to remain unchanged from February.

But later in the day, bond traders were troubled by a report from retail monitor Johnson Redbook, which said that retail sales nationwide rose 5.6% in the first week of April, as consumers apparently began to make up for March’s slump.

Bond investors were also unnerved by the relative lack of interest at the Treasury’s sale of new seven-year notes, said Robert Brusca, chief economist at Nikko Securities International.

“At the last minute, the demand for the seven-year (note) wasn’t there,” he said.

At the auction, the Treasury sold $9.76 billion in seven-year notes at an average yield of 5.54%, down from 6.41% at the last auction Jan. 13. It was the lowest level since the government began issuing the securities regularly in 1978.

The federal funds rate, the interest on overnight loans between banks, dropped to 2.81% from 3.06% late Monday.

Other Markets

The dollar declined against most major foreign currencies in worldwide trading, driven lower by a weak U.S. retail sales report, but it steadied against the surging Japanese yen.

Activity in the foreign exchange market in New York picked up from the slow holiday pace. Many European markets were closed Good Friday and Easter Monday.

Traders expect the dollar and yen to trade in a narrow range this week pending news from the meeting between President Clinton and Japanese Prime Minister Kiichi Miyazawa in Washington.

The two leaders are expected to discuss the economic stimulus package unveiled in Tokyo on Tuesday, which contained elements intended to help Japan trim its huge trade surplus with the United States.

A meeting of major industrialized countries on April 17-19 is also expected to yield some news on the yen-dollar relationship. In New York, the dollar finished the day at 113.40 yen, up from 112.80 yen late Monday.

But the dollar fell to 1.582 German marks from 1.595 on Monday.

In commodity markets, rainy weather in the Midwest had speculators betting on corn planting delays and a corresponding increase in soybean acreage. Corn futures ended mixed and soybean futures fell Tuesday in response.

Corn for May delivery ended unchanged on the Chicago Board of Trade at $2.33 a bushel after posting a 1 1/4 cent gain Monday and a penny advance last week. May soybeans fell 2 cents Tuesday to $5.95 1/4 a bushel.

Light, sweet crude oil for May delivery ended unchanged on the New York Merc at $20.46 a barrel.

April gold rose 70 cents on New York’s Commodity Exchange to $337.70 an ounce; May silver ended unchanged at $3.88 an ounce.

Market Roundup, D6