News of Tame Prices Boosts Stocks, Bonds

Another mild reading on inflation reinforced optimism on Wall Street, sending interest rates lower Tuesday and boosting many leading stock indicators further into record territory.

The Dow Jones industrial average rose 42.11 points to 5,624.71, breaking above the 5,600 mark for the first time in four weeks as the blue-chip sector continued to show renewed vigor.

The Dow is now about 65 points shy of its all-time high, having rebounded about 280 points, or more than 5%, since last week, when it slid below 5,350 on worries about inflation and increasingly competitive bond yields.

The broader market also rose. Major indexes padded Monday’s records in brisk trading after bonds rallied on two reports suggesting that earlier signs of rising consumer spending power have not translated into higher inflation.

The Labor Department reported that the core rate of consumer inflation, which excludes the volatile energy and food segments, rose only 0.1% in April, the smallest increase this year. Separately, the Commerce Department reported that retail sales fell by 0.3% in April, the first setback in five months.

Combined with Friday’s news of a mild increase in wholesale prices during April, the reports bolstered hopes that the inflation-leery Federal Reserve Board won’t need to raise interest rates to slow the nation’s business activity. The Fed’s policy-makers meet again next week.

“Those two numbers added a degree of comfort that wasn’t there before,� said Thom Brown, market strategist at Rutherford, Brown & Catherwood in Philadelphia. “There’s still two camps of opinion out there, but the tide has swung toward the unconcerned camp.�

After the new reports came out, bond yields fell for a third straight session, with the yield on the 30-year Treasury bond--a benchmark rate used to set the interest on many types of loans--tumbling from 6.90% at Monday’s close to 6.84%, lowest since April 29.

Stocks followed the bond market’s rally, with winners outnumbering losers 15 to 9 on the New York Stock Exchange and by 23 to 16 on Nasdaq, in active trading.

Technology and speculative issues continued their recent rally, lifting the Nasdaq market and the Russell 2,000 index of smaller companies to new highs for the third straight session. The Nasdaq composite index jumped 12.62 points to 1,234.49 and has now risen more than 12.5% in slightly more than a month. The Russell 2,000 rose 2.96 points to 357.46.

Among other indexes, the NYSE composite rose 2.19 points to 356.52 and the Standard & Poor’s 500-stock index rose 4.09 points to 665.60. It was the second straight record close for both indicators, which are heavily weighted with the type of bigger companies that had fallen out of favor in recent months after a stunning rally earlier this year.

Among the market highlights:

* Broad-based buying among blue chips lifted Boeing 2 3/8 to 81 3/4, Texaco 1 3/8 to 83 1/4, Coca-Cola 1 3/8 to 44 3/8, DuPont 3 to 82 3/4 and General Motors 2 1/8 to 54 3/4,

* Among tech issues, Xylan rose 2 to 68, FileNet leaped 2 1/4 to 56, Cabletron Systems rose 1 7/8 to 79 1/8, 3DO jumped 2 3/8 to 12 3/8 and Cybercash surged 2 1/2 to 49.

* Caremark International rose 3/4 to 29 1/2 and MedPartners/Mullikin lost 1 1/8 to 25 after the companies announced an agreement for MedPartners/Mullikin to acquire Caremark in a $2.5-billion stock swap.

* Corning surged 2 3/4 to 37 7/8 after saying it will spin off its clinical laboratory and pharmaceutical service units to shareholders.

* ValuJet gained 1 5/16 to 15 as brokerage PaineWebber reportedly raised its investment rating on the stock, which slid almost 25% on Monday in reaction to Saturday’s crash of a ValuJet DC-9.

Overseas, Tokyo’s Nikkei-225 index added 129.23 points, or 0.61%, to 21,301.05 while London’s FTSE-100 ended 20.5 points higher at 3,759.7. In Mexico City, the Bolsa index eased 0.45 point to 3,250.33.