Stocks Extend Rally for a 4th Day; Bond Yields Rise

U.S. stocks gained for a fourth day on confidence that Federal Reserve policymakers will do what it takes to keep the U.S. economy growing. Bond prices fell as the Treasuries’ appeal as a haven faded.

The Dow Jones industrial average rose 114.05 points, or 1.3%, to 8,706.15, led by Coca-Cola. The broader Standard & Poor’s 500 index climbed 12.93 points, or 1.2%, to 1,111.60. The Nasdaq composite index gained 29.49 points, or 1.7%, to 1,800.88.

“It looks like the investor has found the stock market again,” at the expense of Treasury bonds, said Alan Day, who helps oversee $2.1 billion at Stratevest Group in Burlington, Vt.

The yield on the benchmark 30-year T-bond soared to 5.25% from 5.15% on Friday, to reaching its highest yield since Sept. 15.

The dollar fell against the yen after three of Japan’s largest banks, in a sign the country’s financial system is taking further steps to restore its health, said they were considering merging businesses to cut costs. The dollar fell to 114.73 yen from 116.14 on Friday. It was little changed at 1.653 German marks.

Stocks had dropped almost 20% from mid-July through Aug. 31 on concern that the U.S. economy was losing steam after eight years of expansion. It wasn’t until after the Fed cut rates on Sept. 29 and again on Oct. 15 that investors’ optimism returned. The Dow is now up 16% from its low.

“It was sheer terror for the past three months,” said Philip D. Tasho, chief investment officer at Riggs Investment Management Corp., which manages $2.8 billion. Now investors realize “we’re not in a recession and there is still no inflation,” and that corporate earnings are meeting or exceeding expectations.

Declines in stocks all over the world--prompted by Russia’s debt default and currency devaluation in August--sent investors rushing to the relative safety of U.S. Treasury debt. That sparked a rally that sent 30-year bond yields to a 31-year low of 4.69% last month.

But stability has returned after the two Fed interest rate cuts and since the Group of 7 nations announced plans Friday that include increased lending to emerging-market countries. Investors also were encouraged by news that Fuji Bank, Dai-Ichi Kangyo Bank and Yasuda Trust & Banking said they may set up a bank to take over Yasuda Trust’s pension fund and corporate securities management businesses.

A weaker U.S. currency lessens the attractiveness of dollar-denominated assets such as Treasury bonds to foreign investors, who realize smaller returns when converting profits back into local currencies.

This trend comes as the Treasury is selling $79 billion in securities this week as part of its quarterly debt sales.

Among Monday’s highlights:

* Coca-Cola rose $3.44 to $71 after Warren Buffett, the billionaire investor whose Berkshire Hathaway controls about 200 million shares of the beverage company, told the New York Times he expects Coke’s business to keep growing even as “hiccups” in other countries cause overseas sales to decline.

Other Dow gainers included American Express, up $3.81 to $91.88; Boeing, up $3.75 to $41.31; and Merck, up $3.44 to $138.50.

* Sofamor Danek Group, a surgical equipment maker, soared $8.50 to $110.13 after it agreed to be acquired by Medtronic, one of the world’s largest manufacturers of pacemakers, for $3.6 billion, or $115 a share. Medtronic rose $1.56 to $66.56.

* Boole & Babbage gained $3.50 to $30.13 after BMC Software, one of the leading makers of software to manage programs on computer networks, agreed to buy the company for about $877 million in stock, or $31.09 a share. BMC fell $2 to $46.06.

Overseas, Germany’s DAX index rose 1.9%, Britain’s FTSE-100 rose 1.6%, France’s CAC-40 rose 1.3% and Japan’s Nikkei-225 surged 2.9%.

Market Roundup, C14