Stocks Up, but Greenspan Talk May Hurt Today

Stocks rose Thursday after a report of relatively modest inflation boosted the bond market and calmed jittery stock investors, sending the Dow industrials to a new closing record.

But the calm could be short-lived as investors react today to Fed Chairman Alan Greenspan’s comments Thursday night that fueled fears of a possible new round of interest rate hikes.

The Dow rose 31.33 points, or 0.3%, in Thursday’s trading to close at 11,582.43, just past its previous record of 11,572.20.

Broader stock indicators also closed higher. The Nasdaq composite index snapped out of a two-day slump, soaring 107.19 points, or 2.8%, to 3,957.21. The Standard & Poor’s 500 rose 1.2%.

Winners topped losers by 19 to 12 on the New York Stock Exchange and by 25 to 15 on Nasdaq.

Driving stocks: The yield on the benchmark 30-year Treasury bond fell to 6.65% from 6.70% the day before after the government reported few signs of inflation at the wholesale level in December, excluding food and energy costs.

Sliding yields benefited bank and brokerage stocks that often suffer when rates are rising. J.P. Morgan gained $3.19 to $122.81 and Chase Manhattan rallied $1.06 to $71.31.

Merger activity also enlivened the sector. U.S. Trust zoomed $54.13 to $133 after agreeing to be acquired by Charles Schwab for about $129 per share. Schwab rose $2.88 to $40.50.

But after markets closed Greenspan, in a speech in New York, suggested the Fed believes a further rise in interest rates will be necessary to cool the economy and dampen the “wealth effect” caused by the stock market’s long surge.

That may not play well today on Wall Street. The government also today reports on consumer inflation in December.

Among Thursday’s highlights:

* America Online rose for the first time since it announced its merger deal with Time Warner on Monday, gaining $5.44 to $65.50. Time Warner rose $5.13 to $84.75.

* MCI WorldCom gained $3.69 to $47.88, extending Wednesday’s rally. The stock sank Tuesday on reports its UUNet Technologies unit could be hurt by America Online’s pending purchase of Time Warner. Analysts later said the concern was exaggerated.

* Tech stocks in general reversed two days of steep losses. Apple Computer surged $9.56 to $96.75 after Morgan Stanley Dean Witter raised its rating on the stock to “outperform” from “neutral,” citing the company’s product pipeline.

* Excite@Home rose $6.94 to $42.56 amid speculation that AT&T; will buy the rest of the high-speed Internet access provider that it doesn’t already own.

* Oil shares rallied along with crude prices after Saudi Arabia’s oil minister said OPEC members have agreed to keep restrictions on production beyond their scheduled March expiration. Exxon Mobil gained $1.94 to $85.44, Amerada Hess jumped $1.88 to $56.81 and drilling contractor Rowan climbed $1.56 to $22.44.

* Tommy Hilfiger dropped $3.44 to $15.75 after the designer of casual clothes warned earnings in its fiscal third and fourth quarters will miss forecasts. Morgan Stanley Dean Witter analyst Josephine Esquivel cut her recommendations twice, first to “outperform” from “strong buy,” then to “neutral.”

* Among Southland companies, East West Bancorp rose $1.69 to $12.19 after reporting that fourth-quarter earnings rose to 35 cents a share from 27 cents a year earlier. Aurora Biosciences skidded $4.50 to $33.25.

* Latin American stocks soared after Telefonica of Spain offered to buy all shares it doesn’t own in four units in the region. Brazil’s Bovespa index rose 4.1%, Argentina’s benchmark index zoomed 8% and Chile’s jumped 3.8%.

Market Roundup, C5