Stocks rebounded Friday in the second slowest session of the year as news of better-than-expected wholesale prices in February encouraged the market to shake off the burden of rising interest rates.
The Dow Jones industrial average, which closed unchanged Thursday, jumped 27.28 points to 3235.91."It's very demoralizing that the bond market did not respond to the positive producer price numbers," said Hugh Johnson, head of the investment policy committee at First Albany Corp. in Albany, N.Y.
He said he was surprised stocks were able to climb "when bonds or longer-term interest rates are rising and attractive."
He said the stock market apparently rose "in anticipation of a good economy and strong earnings," while the bond market declined on the notion that "the Federal Reserve is finished easing or lowering short-term interest rates and, secondly, the bond market is worried that although inflation is low now, in time it will become stronger."
But Johnson added he did "not believe the stock market can have a sustained rally in the face of attractive high bond yields."
Among the broad gauges, the New York Stock Exchange composite index rose 1.00 to 224.30, while Standard & Poor's 500-stock index climbed 1.95 to 405.84. The price of an average share gained 16 cents.
Advances topped declines 994-670 among the 2,189 issues crossing the NYSE tape.
Final floor volume amounted to 177,900,000 shares, compared with 180; 310,000 in the same period Thursday. The year's slowest trading session was on Monday when only 160,840,000 shares changed hands.
Stocks ended slightly higher on the American Stock Exchange and in over-the-counter trading.
Key U.S. government securities remained weak after an initial rally fizzled.
Traders suggested that much of the early gain was from short-covering and the rally faded on a lack of follow-through buying.
The 30-year bond was down 11/32 to 99 7/32 for a yield of 8.06 percent, the highest level since it reached 8.08 percent on Oct. 23.
The 10-year Treasury note fell 21/32 to 98 20/32 for a yield of 7.70 percent - its highest level since Sept. 11, when the issue yielded 7.74 percent. Last week the 10-year note closed at 100 13/32 for a yield of 7.46 percent.
Hildegard Zagorski, vice president for national sales at Prudential Securities Inc., said the market looked "pretty good at the opening, following the rally in bonds on some good news on the inflation front."
"It was a good snapback," she said, but cautioned that "basically the market is in a downtrend. It's in a corrective mood. We get these periodic bounces. These technical bounces usually don't last long."
Analysts said the market opened higher on buying encouraged by a rally in bond prices following the release of a report on wholesale price increases.
The Labor Department said prices wholesalers pay for goods edged up 0.2 percent in February, the first increase in three months, because of a sharp jump in food prices. Economists had expected a 0.3 percent rise.
The seasonally adjusted increase in the government's Producer Price Index for February followed decreases of 0.3 percent in January and 0.1 percent in December.
The index tracks prices of raw materials charged to producers and is traditionally an important indicator of future consumer prices. The Labor Department next Tuesday will release its report on consumer prices.
On the trading floor, Vallasis Communications paced the Big Board actives, easing 1/8 to 165/8.
LL&E Royalty Trust followed, rising 5/8 to 35/8 after reports an energy research firm considered the oil and gas trust an attractive takeover possibility.