Stocks, Bonds Rise on News of No Rate Hike

Stock prices jumped and bonds also rose Tuesday as investors cheered the Federal Reserve Board’s decision to hold interest rates steady.

The Dow Jones industrial average, which spent most of the session mired in the minus column, exploded in mid-afternoon trading to end with a gain of 74.58 points at 7,303.46. This was within striking distance of the record 7,333.55 set on Thursday.

Broader market measures also turned higher after Tuesday’s anxiously awaited Fed meeting produced no change in monetary policy. The Nasdaq composite index jumped 22.64 points, or 1.69%, to 1,363.88 amid big gains in technology stocks.

U.S. bonds rose after the meeting of the Federal Open Market Committee, which ended with no action on rates, suggesting central bankers expect the economy will slow enough to keep inflation in check.

As the benchmark 30-year bond gained, its yield fell to 6.90% from Monday’s 6.92%. Two-year notes advanced more, with the yield falling about 7 basis points to 6.18%.

“Both the bond market and the Fed have correctly paid attention to� reports suggesting the economy is losing steam, said Scott Grannis, who helps manage $30 billion in bonds for Western Asset Management in Pasadena.

Bonds overcame early losses suffered when the dollar fell to a five-month low against the yen, raising concern Japanese investors will purchase fewer Treasury securities.

The debate over whether the economy’s vigorous pace was easing enough to keep inflation in check had raged since late March, when Fed officials boosted one of the central bank’s key short-term lending rates for the first time in two years, spurring a steep market selloff.

For months, economists have been concerned that heavy consumer demand will aggravate inflationary pressures such as rising production costs. But after the March rate hike, investors grew fearful the Fed would hurt company revenues by slowing the pace of borrowing and spending too drastically.

Naturally, almost as soon as the Fed guessing game ended Tuesday, the debate turned to the potential outcome of the next Fed meeting on July 1-2.

Investors have concluded that a July rate hike “is completely off the table unless we get evidence of surprisingly strong economic activity this summer,� said Jim Weiss, deputy chief investment officer for equities at State Street Research and Management Co. in Boston.

On the New York Stock Exchange, advancing issues outnumbered decliners by a 4-to-3 margin in moderate trading.

The Standard & Poor’s 500-stock list rose 8.39 to 841.66, and the NYSE’s composite index rose 3.06 to 437.20, leaving both measures less than a point shy of record territory.

Among Tuesday’s highlights:

* Brokerages and financial issues, whose fates are closely tied to interest rates, scored big. Citicorp rose 3 7/8 to 119 7/8. Merrill Lynch rose 5 to a record 104 5/8. Insurer American International Group rose 1 1/2 to 132 3/8.

* Nasdaq was propelled by big tech issues. Intel rose 6 1/4 to 161; Dell Computer rose 2 1/8 to 99 5/8, an all-time high. Cisco Systems jumped 3 7/16 to 64 3/8; Intuit added 2 1/4 to 28 1/4; and Advanced Micro Devices increased 2 1/4 to 42 1/4.

But C-Cube Microsystems fell 5 5/8 to 19 7/8 after the maker of chips for video-CD movie players forecast disappointing earnings.

* A number of retailers reporting positive earnings rose. Home Depot added 1 to 60 3/4; AnnTaylor rose 5/8 to 24; and Dayton Hudson added 2 to 49.

Overseas, Tokyo’s Nikkei stock average fell 0.8%, Frankfurt’s DAX index fell 1.7%, and London’s FTSE-100 fell 0.8%.