FINANCIAL MARKETS : Dow Gains 29 on Renewed Fed Rate Cut Hopes

Stocks rose strongly in abbreviated pre-holiday trading Monday as fresh signs of weak economic growth fostered hopes of an interest rate cut this week by the Federal Reserve’s Federal Open Market Committee.

The Dow Jones industrial average rose 29.05 to 4,585.15. Beyond the Big Board, stocks also managed to rise modestly, with gainers outnumbering losers by about 4 to 3 on the New York Stock Exchange. Broad market indicators also closed moderately higher.

Activity was subdued on Wall Street because many market participants took the day off ahead of the July 4 holiday. Big Board volume amounted to 145.49 million shares at the end of the abbreviated session. On Friday, 311.37 million shares changed hands.

Investors, focusing on the meeting Wednesday and Thursday of the Fed’s policy-setting Federal Open Market Committee, acted on expectations that the day’s economic reports would push the Fed toward reducing interest rates to keep the economy from sinking into recession.

Personal income in the United States fell 0.2% in May, reflecting lower wages and salaries, the Commerce Department reported.

A report from the National Assn. of Purchasing Management showed a key indicator of health in the manufacturing sector remained sluggish in June. The index slipped to 45.7 in June from 46.1 in May, the second straight monthly decline after 20 months of growth.

An index reading above 50% indicates an expansion of activity at the nation’s factories, while a reading below 50% indicates a decline.

Separately, the government said May construction spending fell 1.5%, far steeper than the 0.1% fall economists had been expecting and the biggest monthly decline since May, 1991.

In moving higher, the market’s behavior was also consistent with historical trends. Stocks generally advance in sessions just before holidays.

Bonds didn’t offer much to inspire the stock market. Yields ended the shortened session mixed: At the close, the Treasury’s main 30-year yield was up one basis point at 6.63%. Its price finished down 3/16 point, or $1.88 per $1,000 in face value.

Among Monday’s highlights:

* Increases in selected issues, including IBM , up 1 5/8 to 97 5/8, and Chevron, up 1 3/8 to 47 3/4, accounted for much of the Dow average.

* Boeing fell 1 to 61 5/8. Last Friday, the aircraft maker said it is scaling back production on two of its jetliners.

* Republic New York gained 2 3/8 to 58 3/8. The stock was added to Standard & Poor’s 500 index after the end of trading Monday.

* Microsoft was up 9/16 to 90 15/16 after attracting attention due to published reports indicating the company is studying how to uncouple software for its planned on-line service from the forthcoming Windows 95 program. The move would be necessary in the event that the Justice Department takes antitrust action.

* Diodes rose 1 1/2 to 12 3/4 after the supplier of semiconductor products gave a upbeat assessment of its financial performance.

* Argosy Gaming Co. jumped 3 3/4 to 16 5/8 after the company’s joint venture was issued a certificate of suitability to operate a riverboat casino in Lawrenceburg, Ind.

* Protein Design Labs Inc. dropped 6 7/8 to 13 7/8 after the company and its partner, Hoffmann-La Roche Inc., said a study showed its Zenapax drug was ineffective in preventing disease following bone marrow transplants.

Overseas markets were mixed. Tokyo shares resumed their downward march, with the key Nikkei 225 average closing at its lowest level in nearly three years. However, the index was rescued from its morning tumble below the 1992 closing low of 14,309.41, thanks in part to public fund buying. At the close the Nikkei was down 31.99 points at 14,485.41.

In Europe, Frankfurt’s 30-share DAX average ended up 8.33 points at 2,092.26, while London’s Financial Times-Stock Exchange 100-share average was up 9.1 points at 3323.7.

Mexico’s Bolsa index dipped 1.65 points to 2,186.58 points.

Corn, soybean and oat prices rose Monday, while wheat prices fell on expectations of drier weather in the Midwest.

A prolonged dry spell in July could stunt spring-planted corn and soybean plants just as they enter key growing stages, but dry weather is what wheat farmers need to resume harvesting in soggy fields.

Trading was quiet prior to the Independence Day holiday, and most New York commodity exchanges--where energy, precious metals prices and coffee and other soft commodities are traded--were closed.

Market Roundup, D4

* SOFTENING ECONOMY

New reports put pressure on Federal Reserve to ease. A1