Dow Muscles Above 7,000; Yields Decline

Just 77 more points, and it will seem as if the stock market’s pullback never happened--at least for the Dow Jones industrials.

The Dow gained 46.96 points on Wednesday, adding to Tuesday’s stunning 179-point surge and leaving the blue chip index at 7,008.99. That is just 1% below the all-time high of 7,085.16 set on March 11.

The stock market overall also closed higher, although the rally had much less energy than Tuesday’s. Winners topped losers by 16 to 10 on the New York Stock Exchange, compared with Tuesday’s 21-to-5 margin.

Stocks fell initially Wednesday as bond yields jumped, responding to the government’s report that gross domestic product grew at a stunning 5.6% annual rate in the first quarter. (Story, A1.)

While Tuesday’s big rally in stocks and bonds was sparked by a smaller-than-expected rise in overall employment costs in the first quarter--a sign of contained wage inflation--the GDP report was far above expectations and seemed to raise the odds of another Federal Reserve Board credit-tightening move to slow the hot economy.

Moreover, the GDP report’s “implicit price deflator,” a broad measure of inflation in the economy, rose at a 2.3% annual rate in the quarter, the fastest pace since the second quarter of 1995.

But bond yields fell back as trading progressed. Many economists argued that a buildup in inventories in the first quarter, a big reason for the GDP surge, will mean slower growth ahead.

Bonds also got a boost from rising hopes that the White House and Congress may be close to a balanced-budget agreement, traders said.

By the close, the yield on the 30-year Treasury bond was at 6.95%, down from 6.98% on Tuesday and the lowest since March 24.

But short-term yields didn’t follow long-term yields, hinting at traders’ uneasiness ahead of key economic data still ahead. On Friday the government reports on April employment trends.

Even so, “The probabilities of a Fed [tightening] move are shifting in everyone’s minds” after this week’s numbers, said Lennart Carlson, who oversees $20 billion of bonds at Aeltus Investment Management in Hartford, Conn.

As for stocks, analysts say investors may continue to jump back into the market if bonds rally further.

In one encouraging sign, battered small stocks attracted more interest on Wednesday. The Russell 2,000 index of smaller issues rose 0.7%, slightly more than the Dow. Still, investor caution was evident. Winners topped losers by just 21 to 19 on Nasdaq. And the Dow utility stock index paused, closing unchanged at 216.39 despite bonds’ rally.

Among Wednesday’s highlights:

* Blue chip issues hitting new 52-week highs included Coca-Cola, up 1 to 63 5/8; Union Carbide, up 1 to 49 7/8; McDonald’s, up 5/8 to 53 1/2; and Exxon, up 1 to 56 5/8.

* Many beaten-down tech issues continued to rise. IBM gained 2 1/8 to 160 1/2, Cadence Design rose 2 1/2 to 32 and Ascend Communications surged 4 5/16 to 45 3/4.

* Retail stocks were broadly higher. Woolworth rose 1 3/8 to 21 1/2, Home Depot gained 3/4 to 58, Sears rose 1/2 to 48 and Toys R Us gained 7/8 to 28 1/2.

* Energy shares also gained. Atlantic Richfield added 1 1/8 to 136 1/8, Mobil rose 1 1/2 to 130 and USX-Marathon was up 1 1/8 to 27 5/8.

Elsewhere, in currency trading, the dollar hit a high of 127.14 Japanese yen before settling at 127.06 yen in late New York trading, up from 126.93 yen late on Tuesday. It touched 1.7348 German marks before ending at 1.7315, up from 1.7245 Tuesday.

In commodities markets, soybean prices rocketed after an influential U.S. agricultural consultant said in Buenos Aires that he expected prices to rise further.

At the Chicago Board of Trade, soybeans for May delivery jumped 22 cents to $8.89 1/2 a bushel.