Yields Jump on Economic Data But Stocks Still Stage Rally

A stronger-than-expected December jobs report sent market interest rates up sharply Friday, but stocks shook off an early sell-off to close with widespread gains.

The Dow Jones industrial average rocketed 78.12 points, or 1.2%, to a record 6,703.79--the first close over the 6,700 mark--in a rally that analysts said reflected investors’ expectations for continued economic growth this year.

The blue-chip Dow is already up 4% this year, after leaping 26% in 1996.

But the broad market’s advance was much more subdued Friday. Winners and losers were nearly evenly matched on the New York Stock Exchange, and the NYSE composite index rose 0.6% for the day, half the Dow’s gain.

Still, stocks recovered from a steep early-morning dive that saw the Dow down as much as 70 points.

The government’s report that the economy created a net new 262,000 nonfarm jobs in December was well above expectations, and immediately revived fears the Federal Reserve Board will soon be compelled to tighten credit to keep inflationary pressures at bay.

The yield on the 30-year Treasury bond, a benchmark for long-term interest rates, zoomed to 6.85% from 6.76% on Thursday, and now is the highest since Oct. 24.

“The bond market is telling us that [economic] growth has picked up and that so has inflation concern,” said Richard Berner, chief economist at Pittsburgh’s Mellon Bank.

But many economists say the bond market’s inflation paranoia is unwarranted, given that price increases have been amazingly tame in the U.S. economy, outside the volatile food and energy sectors.

Indeed, a host of Fed officials, including Vice Chairman Alice Rivlin, have said in recent days that the economy will likely keep growing at a steady pace this year with little inflation--hardly a prescription for a rate increase.

After the stock market’s morning slump, buyers apparently focused on the possibility that a healthy economy will mean decent corporate earnings in 1997, analysts said.

“If you continue to see better corporate earnings, stocks will follow, even if you get a backup in rates,” said John Maack, a portfolio manager at Crabbe Huson Group in Portland, Ore., with $4.2 billion in assets.

Friday’s stock rally was strong enough to send the Standard & Poor’s 500 index to its first record close since Nov. 25. The S&P; index rose 4.65 points to 759.50, eclipsing the old high of 757.03.

The Nasdaq composite index of mostly smaller stocks also hit a new high, adding 5.82 points to 1,332.02.

Meanwhile, the stock market’s gains helped boost the dollar, which hit its highest level in about 2 1/2 years against the German mark, at 1.587 marks to the dollar.

The economic backdrops in Germany, where unemployment has reached a post-World War II high, and in still-weak Japan, where the stock market is plummeting, stand in sharp contrast to the situation in the United States.

On Friday, Tokyo’s Nikkei-225 stock index tumbled 770.22 points, or 4.3%, to 17,303.65. The index has plunged 21% since early-December on worries that the government’s tight fiscal policy could jeopardize the economy’s recovery and eliminate any chance of government intervention to help prop up the ailing market.

Among Friday’s highlights:

* The Dow was again helped by its oil stocks, as energy shares jumped again on optimism about the industry’s profit outlook. Exxon leaped 2 7/8 to 105 3/4, Chevron gained 1 1/8 to 69 1/2 and Texaco soared 2 3/8 to 107 3/8. Other winners included Unocal, up 1 to 45 1/8, and Western Atlas, up 1 3/4 to 74 1/4.

* Industrial issues were broadly higher as investors hunted for stocks that could benefit from economic strength. Alcoa surged 1 5/8 to 71 1/4, AlliedSignal rose 2 3/8 to 70 1/2, GM gained 1 7/8 to 61 1/8 and Caterpillar was up 1 7/8 to 78.

* Many tech issues also jumped. Motorola rose 1 3/8 to 66 3/8 after its fourth-quarter earnings report contained signs of turnarounds in key businesses. Also, Vitesse Semiconductor surged 4 11/16 to 50 1/2 after reporting quarterly earnings up 150%.

Other tech issues rising included Western Digital, up 3 5/8 to 66 3/4; Ascend Communications, up 4 1/8 to 67 3/8; Compaq, up 4 to 79 1/8; and America Online, up 5 1/2 to 39 5/8.

In commodities trading, grain prices rocketed after the U.S. Agriculture Department cut its final estimates for 1996 crops and stockpiles and reported the lowest winter wheat plantings since 1978.

Market Roundup, D4