Falling Yields Take Stocks to Records

Stocks shot to record levels Friday, fueled by a fall in bond yields as investors bet that the budget impasse in Washington will not drag on much longer.

The Dow Jones industrial average closed up 54.92 points at 5,271.75, surpassing Wednesday’s record high of 5,242.84. The Dow rose 87.07 points for the week.

The Standard & Poor’s composite and New York Stock Exchange composite indexes also finished with record highs.

In the bond market, the yield on the benchmark 30-year Treasury fell to 6.05% from 6.12% on Thursday. Yields had been rising for several days because of ner vousness about the prospect of a federal bond default.

“The bond market is excited that Washington is getting its fiscal act together, and that’s helping stocks,” said Marshall Acuff, a portfolio strategist at Smith Barney. Although no budget agreement has been reached, Congress and the president have agreed to another stopgap funding bill.

Lower yields help stocks by limiting the attraction of fixed-income investments and by boosting the value of future corporate profits.

Acuff said most of the buying Friday was in blue-chip stocks. Shares of American Express rallied 2 3/8 to 43 1/8. That alone contributing almost 7 points to the Dow industrials’ advance. BusinessWeek magazine reported that the company may be a takeover target.

“We’ve seen the resurgence of some takeover activity,” suggesting that many stocks remain undervalued, said James Engle, chief investment officer at Wood Struthers & Winthrop. The activity gives “new life into the market.”

Two days ago, Mattel offered to buy rival toy maker Hasbro for $5.2 billion. On Friday, Mattel fell 7/8 to 30 5/8, and Hasbro rose 2 1/2 to 43.

Earnings from individual companies have also been restoring confidence in the market.

I/B/E/S, a firm that tracks corporate results, said that of the companies in the Standard & Poor’s 500 index to have reported quarterly results so far, 50% had positive surprises, 35% posted negative surprises and 15% reported on-target results.

Among the strong earnings reports was one from McDonald’s, whose stock added 1 1/4 to 50 1/4 after it said its fourth-quarter net income rose 19%.

General Motors stock jumped 5/8 to 51 1/8. Analysts expect the nation’s No. 1 auto maker to report fourth-quarter earnings of $1.35 a share on Tuesday. A week ago, Chrysler reported earnings that dazzled investors. Its stock has risen 9.8% since then, including Friday’s gain of 1 1/8 to 57 3/8.

Wall Street was also hopeful that the Federal Reserve Board will cut interest rates at its meeting next week. The Fed’s policy-making Federal Open Market Committee will meet on Tuesday and Wednesday to decide whether it will lower short-term rates again. The Fed lowered interest rates twice last year by a total of one-half a percentage point.

The meeting will indicate whether the Fed believes the economy is as weak as many perceive it to be.

Among market highlights:

* Bristol-Myers Squibb rose 3/4 to 86 3/4 on news that a Florida jury ruled in the company’s favor in a breast implant lawsuit.

* Exide tumbled 14 3/8 to 33 3/8 after the battery maker warned Thursday that its third-quarter results would fall short of Wall Street estimates.

* Delta Air Lines fell 2 3/8 to 68 5/8. The carrier said it may take a pretax charge of up to $650 million for the third quarter because of staff cuts and an evaluation of its aircraft fleet.

* Harley-Davidson rose 3 7/8 to 34 1/8 after reporting stronger fourth-quarter earnings on Thursday.

* Omnipoint, which commercializes personal communications services, climbed 5 to 21 in its first day of trading.

* Tobacco shares dropped amid concern the companies haven’t disclosed all they know about the dangers of cigarettes, traders said. Philip Morris shares dropped 1/8 to 92 3/4 and UST slid 1 to 33. But RJR Nabisco Holdings rose 3/8 to 34 1/2.

Gold prices soared briefly to a 5 1/2-year high of $409.50 on Friday, but February gold later settled 90 cents lower to finish at $405.80 an ounce.

Several foreign stock market indexes, including those in Frankfurt and London, approached all-time highs. Mexico’s Bolsa index rose 25.90 points on Friday, or 0.85%, to close at 3079.08, just 10 points shy of its all-time high of 3087.48, reached Monday.

Canadian stocks hit to their third record high this week. The Toronto stock exchange 300 index closed up 30.72 points at 4901.20.

Confidence about Washington’s budget prospects kept the dollar near a four-month high against the German mark. In late New York trading, the dollar closed at 1.4915 marks, up from 1.4890 marks on Thursday.