Stocks Climb as Earnings Fears Ease

The stock market advanced broadly for a second consecutive session Friday, ending another volatile week on an up note.

Bonds, meanwhile, were calm ahead of next week’s heavy calendar of economic data, much of which may determine whether the Federal Reserve Board raises interest rates soon.

On Wall Street the Dow industrials rose 51.05 points to 5,473.06, following Thursday’s gain of 67.32 points. For the week, the Dow added 46.24 points, or 0.9%.

The Nasdaq composite index of mostly smaller stocks advanced 17.05 points, or 1.6%, to 1,079.44 on Friday, though it still finished down 1.7% for the week.

The heavy selling that has punished stocks since early July has left the Dow down 5.3% from its 1996 record high and the Nasdaq index off 13.6% from its peak.

But one of the worries behind that selling--fear of slowing corporate earnings growth--seemed to ease somewhat this week, helped by some better-than-expected second-quarter reports.

In fact, among the Standard & Poor’s list of 500 blue-chip companies, about 350 have reported their second-quarter results, and 60% have exceeded analysts’ estimates, while just 21% have been below estimates, said Jeffrey Applegate, chief investment strategist at Lehman Bros.

“That’s a fairly decent level of positive surprises,� he said, although other experts note that analysts have been cutting estimates in recent months, so beating them became easier.

Compaq Computer and IBM both reported results this week above expectations. So did Gateway 2000, a major direct-marketer of personal computers. Those reports helped rejuvenate the battered tech-stock sector on Thursday and Friday.

Also Friday, Prudential Securities recommended semiconductor stocks, arguing that they have bottomed after a long decline.

“It’s like a ‘safe-to-come-back-into-the-water’ kind of attitude,� said Richard A. Dickson, a technical analyst at brokerage Scott & Stringfellow in Richmond, Va. “People have seen there are actually more earnings surprises than negative surprises, and they’re saying maybe things aren’t as black as they seemed.�

Advancing issues outnumbered decliners by 1,556 to 805 on the New York Stock Exchange and by 2,274 to 1,449 on Nasdaq on Friday. But some analysts were disappointed that trading volume shrank to moderate levels, suggesting a relative lack of conviction behind the rally.

In the bond market, the 30-year Treasury bond yield closed unchanged at 7.01%, up from 6.98% a week earlier.

But bonds face a big test next week: Fed Chairman Alan Greenspan strongly hinted that the Fed will decide whether to tighten credit based on economic and inflation data due in the next two weeks. On Tuesday, for example, the government reports the employment cost index for the second quarter, a key measure of wage inflation.

On Thursday the government reports on second-quarter economic growth, and on Friday, July employment data is due.

“When we look back at it one or two months from now, next week will look like an inflection point: We’ve got all the numbers that will weigh heaviest on Fed policy,� said Tom Carpenter, economist at ASB Capital Management.

If bond yields rise again on expectations of a Fed tightening move, many analysts say stocks’ decline will resume.

Among Friday’s highlights:

* Semiconductor stocks gained after Prudential rated a number of them “buys,� including Intel, up 2 1/8 to 74 1/4; LSI Logic, up 2 3/8 to 20 3/8; Microchip Tech, up 2 1/2 to 30 3/4; and Xilinx, up 2 1/4 to 31 1/4.

* Gateway 2000 jumped 2 3/8 to 39 3/4 after saying earnings jumped 50% in the latest quarter. Other computer stocks rising included Compaq, up 1 1/8 to 53; Apple, up 1 to 22; and Dell, up 2 to 53 3/4. But IBM added just 1/4 to 103 7/8 after soaring 13% on Thursday.

* Chemical stocks were strong as investors reacted to better-than-expected earnings in that sector. Dow Chemical gained 1 7/8 to 73 3/4, DuPont jumped 1 1/4 to 80 1/2, Georgia Gulf rose 1 3/8 to 30 3/8 and PPG Industries rose 1 3/8 to 48 1/2.

* Among other industrial names, Caterpillar jumped 2 1/8 to 66 1/4, TRW added 2 1/8 to 86 3/4 and United Technologies shot up 4 to 112 1/4.

* Investors returned to many classic growth stocks, including Gillette, up 1 3/8 to 63 3/4; Starbucks, up 2 15/16 to 26 3/4; and Philip Morris, up 1 7/8 to 102 1/8.

Also, Whole Foods Market leaped 4 1/8 to 28 3/4 after saying quarterly net income tripled.

In foreign trading, Argentina’s Merval stock index dove 4.1% on news that President Carlos Menem had asked for economy minister Domingo Cavallo’s resignation.

In commodities trading, wheat and crude oil futures closed sharply lower--oil amid a wave of speculative selling ahead of an expected decision by the United States to approve Iraqi oil sales, and wheat on concern about the recent cancellation of U.S. sales to China.