Stocks Buoyed by Further Dip in Bond Yield

Market Overview

* Stocks closed mostly higher Monday, though in thin trading. Several key indexes hit new highs. European markets also gained.

* Bond yields eased again as buyers took over after Friday’s mild selloff. Gold rose.

Stocks

The market’s strength was deceptive: Although the Dow industrials inched up just 3.36 points to 3,643.99, winners topped losers 11 to 8 on the Big Board.

The Standard & Poor’s 500 index hit a new high, rising 1.36 points to 461.90. The NASDAQ composite index also closed at a record, up 3.31 points to 737.38.

But analysts noted that trading volume was extremely slow at 194.18 million shares on the NYSE. Trading should be anemic all week because many players are vacationing.

U.S. stocks took their cue in part from strong overseas markets. In Paris, the CAC-40 index jumped 21.79 points to a record 2,205.67. Frankfurt’s DAX index gained 17.29 points to 1,921.89. The London market was closed for a holiday.

In Tokyo, the Nikkei index rose 121.01 points to 20,912.69.

While many analysts worry that the U.S. market is ripe for a setback, a report Monday from the mutual fund industry showed that stock funds still have substantial buying power: The average stock fund had 9.3% of its assets in cash as of July, up from 9.1% in June.

Many funds normally would have just 5% of assets in cash. The excess cash could spark a new rally if fund managers leap aggressively into stocks this fall, analysts say.

Among Monday’s highlights:

* Utility stocks surged, led by phone stocks. The phone companies are attracting investors lately for two reasons: high dividend yields and expectations of faster earnings growth as the companies exploit the multimedia boom.

Pacific Telesis rose 1 to 54 3/8, Nynex surged 1 7/8 to 91 1/4, BellAtlantic gained 2 1/8 to 63 1/4 and Ameritech leaped 2 1/4 to 86 1/8.

* Two other communications stocks also were leaders Monday: cable TV giant Tele-Communications, up 3/4 to 26 1/2, and MCI Communications, up 7/8 to 27 1/2.

* Renewed buying of industrial stocks lifted Eaton 1 3/8 to 49 3/4; Tenneco, 3/4 to 54; Quanex, 3/4 to 17 3/4, and CBI Industries, 3/4 to 28 7/8.

* Gold stocks were strong. American Barrick gained 1/2 to 25 7/8 and Homestake was up 5/8 to 19 3/4.

Other Markets

Interest rates were mostly lower in the bond market. The yield on the 30-year Treasury bond eased to 6.11% from 6.14% on Friday.

Some investors were responding to the report of a steep decline in home sales in July. That may help assure that the Federal Reserve Board keeps a loose rein on credit in the near term.

* The dollar rose in light trading, closing at 103.83 Japanese yen in New York, up from 103.75 on Friday.

* Near-term gold futures added $1.30 to $370.60 an ounce on New York’s Comex. Silver rose 8.3 cents to $4.83. Elsewhere, crude oil for October fell 7 cents to $18.73 a barrel on the New York Merc.