FINANCIAL MARKETS : Dow Climbs 14 on Optimism Over Economy

Market Overview

Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:

* The stock market extended its gains as investors, encouraged by the economic outlook, pumped more cash into the market. But the pace of the rally slowed.

* Early today, the Hong Kong market recovered some of its recent big losses, on hopes that British and Chinese authorities can resolve some of their simmering differences over the colony’s near-term future.

* Treasury bond yields continued downward, benefiting from favorable economic news that further eased fears of massive new federal spending.

* Oil prices settled at their lowest level since March, with little news to spur buying.

Stocks

Though buying remained strong Tuesday, it was diminished from levels of recent days.

The Dow Jones industrial average gained 14.85 points to 3,322.18, stretching its gain since last Thursday’s close to 45.65 points.

But in the broader market, advancing issues outnumbered declines by only 6 to 5 on the New York Stock Exchange. Volume totaled 234.33 million shares, up from 220.14 million on Monday.

The NASDAQ composite index of smaller stocks again hit a new high, up 0.59 of a point to 667.12. But winners only narrowly topped losers among NASDAQ issues.

Still, analysts said the market’s strong upside momentum overcame early profit-taking. “You’ve really got mood, momentum and money flow,� said Alan Ackerman at Reich & Co.

“The trend seems to be up,� said BT Brokerage trader Jim Benning. “Everytime it goes down a bit, it finds its footing.� But he added, “The market looks like it’s trying to catch its breath.�

Traders continue to focus on Washington, awaiting President-elect Clinton’s decisions on Cabinet posts and his approach to fostering economic growth.

Recent signs of economic improvement have persuaded investors that Clinton may be able to revise his plans for a major fiscal stimulus package and instead focus on lowering the nation’s huge budget deficit.

Tuesday, a nationwide survey of corporate purchasing managers showed that more than three-quarters predict better business next year, the highest percentage of optimists since 86% forecast a brighter 1984 nine years ago.

Among the market highlights:

* Industrial stocks again led the market on hopes for stronger economic growth next year. TRW advanced 1 5/8 to 56 7/8, Dow Chemical gained 1 3/8 to 56 5/8, Chrysler added 7/8 to 33 1/4, Nucor jumped 1 5/8 to 73 1/8, and Monsanto rose 7/8 to 55 1/4.

Also, Deere climbed 1 7/8 to 39 5/8. The farm machinery maker posted a 5-cent-a-share profit for the quarter ended Oct. 31, contrasted with a loss a year earlier.

* Media stocks were in the spotlight, thanks to Paine Webber’s annual media conference underway in New York. Capital Cities/ABC surged 15 3/4 to 478 1/2 after the network gave a generally upbeat assessment of its outlook, as its TV ratings improve.

On the downside, newspaper stocks failed to impress the market with their less-than-rosy projections for 1993 ad growth. Times Mirror slipped 1/8 to 30 3/4, Tribune lost 3/4 to 48 3/8, and New York Times eased 1/4 to 26 1/8.

* Among tech stocks, IBM fell 1/2 to 65 3/8 as both Merrill Lynch and Salomon Bros. warned the company may announce a new round of work force cuts and restructuring moves soon. Compaq gained 1 7/8 to 44 1/4. It said its fourth-quarter earnings won’t disappoint investors.

* Home Shopping Network rose 3/4 to 7 on news that Liberty Media plans to acquire 20 million shares in HSN.

* Marvel Entertainment, the comic book maker, added 1 3/8 to 51 5/8. The company said double-digit earnings growth is anticipated beyond 1993, as baby boomers’ kids turn to comics.

* Among Southland issues, food wholesaler Rykoff-Sexton jumped 1 5/8 to 16 5/8 on news that its chief executive had retired. The company on Tuesday reported lower quarterly earnings and cut its dividend, but investors apparently are assuming that the new CEO can turn the company around.

Meanwhile, personal-planner maker Day Runner slumped 2 1/2 to 12 1/4. Montgomery Securities cut its fourth-quarter earnings estimate to a range of 38 to 42 cents a share, from 42 cents, Bloomberg Business News reported.

In foreign markets, London’s Financial Times 100 index rose 15.3 points to 2,769.8, but Frankfurt’s DAX index lost 17.08 points to 1,508.24, hurt by poor earnings at Deutsche Bank.

In Tokyo, the Nikkei average added 74.73 points to 17,281.85.

In Mexico City, the Bolsa index surged 24.47 points to 1,748.25, helped by strong foreign demand.

Hong Kong’s Hang Seng index, meanwhile, recovered from yet another deep selloff early Tuesday to close up 10.61 points at 5,202.36. Early today the index added another 62.26 points to 5,264.62.

Credit

Interest rates fell across the board as fears of heavy new federal spending continued to abate.

The Treasury’s key 30-year bond yield retreated to 7.43% from 7.45% Monday.

The corporate purchasing managers’ report Tuesday provided new evidence of a recovering economy, giving the Clinton Administration less reason to increase government spending and the federal deficit, traders surmised. That is calming inflation worries.

“The market has just had a better tone mostly because of the decreasing fears of inflation,� said Kevin Flanagan, a vice president at Dean Witter Reynolds Inc.

The market could get more help from Friday’s report on November consumer price changes. Market expectations are that the report will show the annual inflation rate remaining around 3%.

The federal funds rate, the interest on overnight loans between banks, rose to 2.63% from 2.50% Monday.

Currency

The dollar ended mostly unchanged in light trading as traders awaited Thursday’s meeting of Germany’s central bank.

The dollar was flat at 1.556 German marks in New York, same as Monday. It also held at 123.75 Japanese yen, unchanged.

On Monday, the dollar fell sharply against the German mark as well as against other currencies.

If Germany holds interest rates level--as expected--the effect could be to bolster the mark anew. Higher interest rates tend to support a country’s currency.

Commodities

Oil prices fell to their lowest level since March, as pessimism mounted over the out-of-balance supply-and-demand situation.

Light, sweet crude oil for delivery in January settled at $18.84 per barrel, down 34 cents, at the New York Mercantile Exchange. That’s the lowest since March 12, when the near-term delivery contract settled at $18.83 per barrel.

“Until either OPEC does something that people see as credible or the refiners do something in the way of crude runs, this market isn’t going to go up,� said Fred Brill, analyst at Pegasus Econometric.

Coastal Corp. said Tuesday that it will curtail production at refineries in El Dorado, Kan.; Corpus Christi, Tex., and Eagle Point, N.J., because of slack demand.

Elsewhere, a two-week rally that pushed up palladium futures 13% faltered as sellers moved in to hedge themselves. On the New York Merc, palladium fell back from an early rally to close unchanged at $106.75 an ounce.

Meanwhile, February gold was 70 cents lower at $335.40 an ounce, and March silver was 1.5 cents lower at $3.77 an ounce on New York’s Commodity Exchange.