Industrial Issues Pace Market Surge

Heavy-industry stocks led Wall Street’s sharp advance Tuesday, as investors bet on a Federal Reserve Board interest rate cut to prolong the economy’s expansion.

The Dow industrial average’s 76.23-point gain, to a record 5,381.21, was powered by such basic-industry names as Alcoa, up 2 1/4 to 56 1/4, and Union Carbide, which soared 3 to 42 3/4.

Analysts said the rally’s spark came from General Motors, which leaped 1 3/8 to a 52-week high of 53 5/8 after reporting unexpectedly strong quarterly earnings.

GM’s results show that profit growth didn’t fizzle late last year even as the economy slowed, suggesting that a renewed economic expansion later this year would trigger even bigger earnings gains, analysts said.

“Earnings we have seen from ‘cyclicals’ have been fairly decent. Tie that in with expectations of further interest rate cuts, and it’s pretty normal to see the stocks doing well,� said Gene Grandone, director of investments at Northern Investment Counselors, which manages $6 billion.

Yet the second part of that equation--a Fed cut in short-term interest rates--still hasn’t happened. The central bank began a two-day meeting Tuesday in Washington but made no announcement. The meeting will conclude this afternoon.

Wall Street obviously appeared convinced Tuesday that a rate cut will happen. That sentiment was bolstered by fresh data showing a struggling economy. The Commerce Department reported that retail sales edged up 0.3% in December in a lackluster holiday shopping season.

In addition, a private research group reported that consumer confidence sank this month to its lowest level in nearly two years with more people anticipating a tougher job market.

Treasury bond yields fell on the the news, as bond traders also appeared more confident about a Fed rate cut. The 30-year T-bond yield dipped to 6.04% from 6.09% on Monday.

On Wall Street, the rally was broad and deep. Advancing issues outnumbered decliners by nearly 2 to 1 on the NYSE in heavy volume of nearly 465 million shares.

The NYSE composite index jumped 3.08 points to a record 337.28, and the S&P; 500 rose 5.93 points to a record 630.15.

The Nasdaq composite index rose 8.79 points to 1,051.30, though it remains below its all-time high.

Can the rally continue? “Too many people think it’ll end and it’s not sustainable. My advice? Sit back, get long and enjoy it,� said James Cramer, president of Cramer & Co. in New York.

Among Tuesday’s highlights:

* Industrial shares surging included Georgia-Pacific, up 3 7/8 to 72 1/4; USX-U.S. Steel, up 2 1/2 to 36; Ford, up 1/2 to 29 1/2; DuPont, up 1 5/8 to 76 3/4; and Eastman Kodak, up 1 3/4 to 72 7/8.

* Among companies reporting earnings, shares of Wm. Wrigley Jr. surged 2 1/8 to reach a record 57 1/4 after the gum giant posted a 34% increase in quarterly profits.

Ben & Jerry’s Homemade, the ice cream company, jumped 1 5/8 to 15 1/2, and cosmetics company Estee Lauder rose 3 1/4 to 37 after both companies beat Wall Street earnings estimates.

* Drug stocks also gained after Eli Lilly reported healthy earnings. Lilly rose 2 1/4 to 55 7/8, American Home Products jumped 2 5/8 to 101 and Abbott Labs rose 1 7/8 to 42.

* Among Southland issues, recreational-vehicle maker Fleetwood Enterprises rose 1 to 26 after saying it may sell its finance subsidiary.

In other trading, bitterly cold weather spreading across the United States lifted commodity prices for grains, oil, natural gas, lumber and orange juice. The Arctic blast threatened wheat in the Great Plains and forced ranchers to feed animals more corn and soybeans to keep them warm.