Blue Chips Spark Rally; Yields Dip

Blue-chip stocks rebounded sharply Wednesday from their weeklong losing streak, propelling the market to its biggest rally in nearly four weeks.

Meanwhile, bond yields pulled back slightly, while the dollar hit a fresh 47-month high against the yen after a senior Japanese official suggested Japan won’t act to stop the greenback’s rise.

On Wall Street, the Dow Jones industrial average ended up 84.66 points, or 1.3%, at 6,740.74, its best gain since Jan. 3, when it surged 102 points.

Broader market indexes, however, were mixed, with smaller and more speculative issues lagging the advance in blue chips.

The Russell 2,000 index of smaller stocks slipped 0.22 point to 366.25. The Nasdaq composite inched up just 0.80 point to 1,355.17.

On the New York Stock Exchange, winners edged losers 13 to 12. Trading volume continued to wane from recent record levels.

Analysts said the bond market’s relative stability Wednesday--thanks to a reported decline in durable-goods orders in December--helped give stock investors an excuse to buy again.

But the focus was on blue-chip companies with proven earnings track records.

“We’re continuing to see money go toward those companies that can have good earnings returns over the next two or three years,” said Jack Sullivan, a principal at Harris Bretall Sullivan & Smith LLC in San Francisco, which oversees $3 billion. “By good returns we mean earnings growth of 15% to 20%.”

“The name of the game was the blue chips,” said Peter Coolidge, senior equity trader at Brean Murray & Co. “There’s still a lot of nervousness in the small-cap names.”

For the beleaguered bond market, where yields have risen to four-month highs in recent sessions, Wednesday provided respite.

The yield on the bellwether 30-year Treasury bond closed at 6.90%, down from 6.93% Tuesday. Shorter-term yields also eased.

The durable-goods report “was a good number for bonds” in that it suggested the economy might be slowing, said Hildegard Zagorski, a market analyst at Prudential Securities in New York.

Even so, she said, “there’s still some trepidation ahead of some other [economic] numbers coming out,” and ahead of the Federal Reserve Board meeting next week.

She also noted that today’s scheduled Senate appearance by Fed Chairman Alan Greenspan compounded the anxiety.

Some bond market pros said they were disappointed that bonds couldn’t rally further Wednesday, especially considering the strong demand at the Treasury’s first auction of new inflation-indexed notes.

“The [bond] market doesn’t like anything at the moment,” said William Gross, a principal at Pimco Advisers in Newport Beach.

“People are looking for any opportunity to sell; we’re still in a waiting phase” over whether the economy is growing at an inflationary pace, said Mike Ryan, a government bond market strategist at PaineWebber Inc.

The strong dollar, which should theoretically be luring foreign investors to U.S. bonds, doesn’t seem to be helping. On Wednesday the dollar advanced again, closing at 122.08 yen in New York, up from 121.15 on Tuesday and a 47-month high.

The dollar rose after Japanese Finance Minister Hiroshi Mitsuzuka suggested Japan won’t act to bolster the yen.

Mitsuzuka’s comments that the Finance Ministry isn’t considering any special steps to deal with the yen’s weakness “relieved some concern about how Japan would respond to the dollar rising above 120 yen,” said Mike Faust, who manages a $400-million global bond portfolio for Bailard, Biehl & Kaiser in San Mateo, Calif.

But the dollar fell against the German mark after Bundesbank President Hans Tietmeyer suggested the dollar’s 22-month rally against it is almost over.

The dollar dropped to 1.644 marks from 1.646 on Tuesday.

The American Automobile Manufacturers Assn.--which represents General Motors, Chrysler and Ford--complained Wednesday that Japan is depressing the yen, which hurts the Big Three by making Japanese cars cheaper for U.S. consumers.

As for stocks, some analysts see another rally ahead.

“We could have a banner day on Friday with a strong fourth-quarter” gross domestic product report, said Robert Froehlich, chief investment strategist at Van Kampen American Capital. “With labor costs not going through the roof and a strong economy, the stock market could decide, ‘This looks good for earnings.’ ”

Among Wednesday’s highlights:

* The Dow’s big gainers included IBM, which rose 5 5/8 to 156 3/8, padding Tuesday’s 5-point gain; GE, up 3 to 103 5/8; DuPont, up 2 7/8 to 107 1/4; Philip Morris, up 2 to 116 3/8; and Intel, up 3 7/8 to 154 3/4.

* Many drug stocks continued to fare well. Bristol-Myers Squibb rose 3 1/2 to 123 1/2; Merck rose 1 1/4 to 88 1/4; Warner-Lambert gained 2 5/8 to 78 7/8.

* Oil company shares also bolstered the Dow as energy prices rose in futures trading on news of tight supplies: Exxon rose 2 3/4 to 103 1/4; Texaco rose 1 3/4 to 107; Chevron added 1 5/8 to 66 5/8.

* On the downside, earnings disappointments socked Brinker International, which fell 4 1/4 to 11, and Actel, down 5 1/2 to 20.

Overseas, Tokyo’s Nikkei stock average surged 3%, Frankfurt’s DAX index rose 0.3% and London’s FTSE-100 fell 0.7%.