Stocks Jump as Yields Sink; Gold Prices Slump Again

Stocks staged another broad rally Tuesday as bond yields tumbled in the wake of the December consumer inflation report.

Meanwhile, gold prices hit a fresh 3 1/4-year low, reacting in part to lowered inflation concerns and to fears of accelerated central-bank gold sales.

On Wall Street, the Dow Jones industrials gained 53.11 points, or 0.8%, to a record 6,762.29, extending the market’s sensational new-year rally. The Dow had been up nearly 80 points in late trading.

Most broad market indexes also advanced strongly, as winners topped losers by 18 to 8 on the New York Stock Exchange and by 23 to 18 on Nasdaq.

Analysts said the market reacted in part to the bond market’s relief over the December consumer inflation data reported Tuesday by the government.

The consumer price index rose 0.3% in December, bringing the full-year increase to 3.3%--the highest inflation rate since 1990.

But prices were skewed last year by increases in energy and food costs. Excluding those sectors, the consumer price index rose just 0.1% in December and 2.6% for the year--levels that suggest there is little in the way of inflationary pressures in the broad economy, despite solid growth.

Bond yields, which have been rising in recent weeks on worries about potentially faster economic growth and the push that might give inflation, fell on Tuesday.

“It’s a sigh-of-relief rally,” said Stuart Hoffman, senior vice president and chief economist at PNC Bank Corp. in Pittsburgh. “The market takes some comfort in the fact that inflation is as expected.”

The bellwether 30-year Treasury bond yield pulled back to 6.76%, down from a two-month high of 6.85% on Monday. Shorter-term yields also fell.

The gold market also appears to be signaling that there is little inflation risk on the horizon. Gold, the traditional barometer of inflationary expectations, fell $5 an ounce to a 3 1/4-year low of $353.70 in New York futures trading Tuesday. (Investor Spotlight, D8.)

Traders cited lowered inflation fears and new worries that European central banks will dump large amounts of their reserve gold on the market this year to help cut national debt levels.

Meanwhile, on Wall Street, analysts said the bull market’s next move up could be powered by surprisingly good fourth-quarter earnings reports.

For much of the last year, analysts have raised concerns that corporate earnings growth is slowing. But each quarter last year, earnings of major U.S. companies, overall, beat expectations.

Fourth-quarter results are beginning to be reported now, and results for some key companies have been encouraging.

On Monday, banking giants J.P. Morgan and NationsBank reported results that were better than expected.

On Tuesday, a number of technology firms reported strong results. And after the market closed, computer chip giant Intel said its quarterly earnings were sharply above analysts’ expectations. “If you continue to have some earnings growth, and you continue to have an expansion, I wouldn’t call an end to the bull market yet,” said Barbara Marcin, a money manager at Citibank Global Asset Management Group, which oversees more than $75 billion.

“Every threat to the rally has been met and overcome, the most recent being the ratcheting up of interest rates in the bond market,” said Joe Battipaglia, chief investment strategist at Gruntal & Co.

Among Tuesday’s highlights:

* The Dow was led by Coca-Cola, up 1 1/2 to 55 1/2; GE, up 1 3/8 to 104 5/8; and 3M, up 1 7/8 to 85 1/4.

* Earnings reports helped boost tech stocks Lattice Semiconductor, up 1 7/8 to 50; Western Digital, up 3 to 75; and Advanced Micro Devices, up 3 1/2 to 32 1/2.

Also, brokerage Salomon Bros. suggested that computer retailer CompUSA has enjoyed an encouraging rebound after a bumpy holiday season. The stock surged 3 1/2 to 17 5/8.

But Exabyte plunged 3 3/4 to 9 1/2 on its earnings report, and Chips & Technologies’ report drove its shares down 5 1/8 to 16 1/2.

* Other companies rising on earnings reports included Fannie Mae, up 1 1/8 to 39 3/4; Student Loan Marketing, up 5 3/4 to 100 1/4; and Ameritech, up 1 to 59 1/8.

* Financial shares were broadly higher, with Great Western Financial up 1 3/8 to 31, Citicorp up 3 3/4 to 104 1/4 and Merrill Lynch up 1 7/8 to 82 3/4.

* Bucking the bullish trend were the shares of health maintenance organizations, which slipped on fears that the federal government will further reduce the premiums Medicare pays HMOs. Oxford Health Plans fell 2 3/4 to 52 5/8, United Healthcare lost 3/4 to 43 5/8 and Foundation Health lost 3/8 to 30 1/8.

In foreign trading, Latin American stock markets zoomed higher with the U.S. market, as did Canadian stocks. The South Korean market continued to rebound, surging 4.1%.

Market Roundup, D6