Capital Gains Tax Cut Talk Boosts Stocks

Blue-chip stocks and bonds rebounded Thursday as Wall Street welcomed plans to lower the capital gains tax rate.

The Dow Jones industrial average ended 50.97 points higher at 7,136.62 as it recaptured part of Wednesday’s 140-point plunge. At one time, the index was up nearly 130 points before profit taking trimmed the gain.

Broader indexes rose as well, led by bellwether technology shares, which benefited from an upbeat reaction to Wednesday’s presentation to securities analysts by International Business Machines Corp. Chairman Louis Gerstner.

The market’s bounce went against conventional wisdom that news of a proposal to make a capital gains tax cut effective as of Wednesday would unleash a wave of pent-up selling on Thursday.

After the stock market closed Wednesday, the Republican chairmen of the congressional tax-writing committees said they would propose setting May 7 as the effective date for a capital gains tax cut.

The cut would allow investors to keep more of their profits when they sell stocks.

But lightening the capital gains tax burden also makes investing in stocks more attractive, a view that held the day Thursday, analysts said.

Also, bonds got a bounce for the first time this week after the government reported a surprisingly high level of unemployment claims, signaling that the economy may be slowing enough to keep inflation at bay.

A weaker jobs market might keep wages and consumer prices from rising and deter the Federal Reserve Board from raising bank lending rates much more to cool the economy and quell inflation, analysts said.

Bond prices initially fell, boosting the yield on the 30-year Treasury bond to 6.99%. But as bonds recovered, the benchmark yield--a key determinant of borrowing costs--fell to 6.93% from 6.96% on Wednesday.

Advancing issues outnumbered decliners by a 9-7 margin on the New York Stock Exchange in fairly heavy trading.

The Standard & Poor’s 500-stock list rose 4.64 points to 820.26, and the NYSE’s composite index rose 1.95 points to 426.90. The Nasdaq composite index rose 7.92 points to 1,330.83.

Among Thursday’s highlights:

* IBM paced the day’s advance among technology issues, rising 5 1/4 to 167 3/8. Top chip maker Intel rose 2 7/8 to 158 3/4, and Microsoft added 1 to 116 1/2.

Computer-networking issues continued to rally. Cisco Systems gained 2 5/8 to 61 3/8 and 3Com rose 1 1/4 to 38 3/8.

* A number of retailers rose on reports of positive sales. J.C. Penney added 3/8 to 49 1/8, Wal-Mart gained 1 to 29 1/4 and Limited rose 1/4 to 19. Costco rose 2 3/8 to 31 7/8.

But Gymboree fell 2 3/4 to 24 13/16 on lower April sales.

* Regional phone companies advanced a day after the Federal Communications Commission approved new rules that will increase costs for businesses and Internet companies.

SBC Communications led the pack, rising 1 1/4 to 56 1/2. Nynex rose 5/8 to 52 3/4 and US West gained 1/2 to 34 3/4.

* Oil issues rallied with the price of crude. Texaco rose 4 3/8 to 110 5/8. Oil driller Reading & Bates rose 1 3/8 to 23.

* PNC Bank fell 1 5/8 to 40 7/8 on reports that it may acquire Oppenheimer for as much as $500 million in cash, stock and options.

* GCR Holdings, a property and casualty insurer in Bermuda, rose 4 7/8 to 27 1/4 after local rival Exel agreed to pay $637 million, or $27 a share.

In currency trading, the dollar cost 123.77 Japanese yen in New York trading, down from 125.13 yen Wednesday and the lowest since April 3.

Overseas, London’s leading FTSE-100 index closed up 42.9 points at a record high of 4,580.4 after being down about 20 points at its worst. In Tokyo, the Nikkei average was 12.91 points higher at 20,061.81.