Falling Yields Push Stocks Up; Dow Adds 22 as Rally Broadens

A brisk bond rally in shortened post-holiday trading Friday helped send stock prices higher, as Wall Street’s advance broadened again.

The Dow industrials added 22.36 points to 6,521.70, the first gain in three sessions. Trading ended three hours early, at 1 p.m. EST.

The bigger story was the growing investor interest in smaller stocks. Winners topped losers by 13 to 9 on the Big Board and by 20 to 14 on Nasdaq, and the Russell 2,000 index of smaller issues rose 0.4% to 354.11, outpacing the Dow’s percentage rise.

Also, the Nasdaq composite index of mostly smaller issues hit another record high, rising 5.29 points to 1,292.61.

For the Dow, Friday’s gain capped a spectacular month. The blue-chip index shot up 492.32 points, or nearly 8.2%, as investors flocked to big-name stocks on hopes for continued moderate economic growth and low inflation.

But the Dow’s advance had become worrisome because the rest of the market wasn’t keeping pace, suggesting limited investor interest. This week, however, smaller stocks performed better than the Dow, indicating that more buyers were hunting for bargains across the broad spectrum of stocks.

The Russell index rose 1.2% for the week; the Dow added 0.8%.

Friday’s gains were sparked by a surprise rally in the bond market. Yields tumbled across the board, with the bellwether 30-year Treasury bond yield sliding from 6.42% Wednesday to 6.35% at Friday’s close, lowest since March 4.

The T-bond yield was at 7.12% as recently as Aug. 30.

Bond buyers appeared unworried about government data Friday showing strength in consumer spending in October. If holiday spending is robust, and the economy picks up speed, it could raise the risk that the Federal Reserve Board will tighten credit in January.

But bond investors don’t seem to think that will happen.

Other factors also are driving bond yields lower, analysts say. “Part of it is foreign buying [of Treasury bonds], and part of it is enormous optimism about reducing the” federal budget deficit, said Dominic Bruno, bond manager at M.D. Sass & Associates in New York.

Among Friday’s highlights:

* Retailers rose on optimism about holiday sales. Sears gained 3/4 to 49 3/4, J.C. Penney added 5/8 to 53 3/4, Pacific Sunwear jumped 1 1/4 to 27 and Claire’s Stores rose 1 1/4 to 16 1/8.

* Bank stocks were generally higher as interest rates fell. Wells Fargo gained 1 5/8 to 284 5/8, Norwest rose 1 1/4 to 46 3/4, California State Bank added 1/2 to 17 and Mellon was up 7/8 to 72 1/4.

* In the tech arena, U.S. Robotics surged 5 1/8 to 78 5/8. The firm said its computer modems will be included in Dell Computer’s Dimension line of personal computers in 1997. Dell rose 1 5/8 to 101 5/8.

Other tech issues closing higher included EMC, up 2 1/4 to 32 1/4; IBM, up 1 1/4 to 159 3/8; Creative Technology, up 2 1/4 to 8 1/4; and MRV Communications, up 2 5/8 to 22 7/8.

Also, Unisys zoomed 1 to 7 5/8 in heavy trading. BusinessWeek said the struggling mainframe computer maker might post a profit in 1997.

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Hot and Cold Stocks: 4-Week Trend

Here are the stocks that have risen the most and fallen the most over the last four weeks through Friday. The four-week trend can be a good indicator of stocks that have strong momentum.

(Please see newspaper for chart)