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Dow Nears 7,800, Capping Record Week

From Times Wire Services

Stocks capped a record-breaking week with a broad-based rally Friday, inspired by further evidence that inflation is under control.

The Dow Jones industrial average rose 70.57 points to 7,782.04 after coming within a third of a point of 7,800. The advance came just one day after the blue-chip barometer broke both the 7,600 and 7,700 marks for the first time.

For the week, the Dow rose a record 346.26 points, topping the rise of 332 points set the week ended May 2. It has risen more than 20% so far this year, a performance well beyond expectations as 1997 began.

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“The market is moving on sheer momentum; it’s on autopilot,” said Marshall Acuff Jr., market strategist at Smith Barney Inc. “It’s sort of like a parade going down the street.”

Advancing issues led decliners by a 2-1 margin all day on the New York Stock Exchange in heavy trading.

Broad-market indexes also set records, including the technology-rich Nasdaq composite, which gained 11.71 points to 1,423.03 after lagging in previous sessions.

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The Standard & Poor’s 500-stock list rose 9.79 points to 893.27, and the NYSE’s composite index rose 4.53 points to 465.17, both setting records for a sixth straight session.

The Dow’s string of record closes is impressive but not near the record of 12, set in January 1987, nine months before the crash.

The latest catalyst for stocks was a report of an unexpected drop in the producer price index for May, the fifth consecutive month that the index has declined.

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The Labor Department reported the PPI dropped 0.3% in May after a 0.6% fall in April. Economists on average had expected the May PPI to rise 0.1%.

The data, coupled with other recent statistics, including Thursday’s report on soft May retail sales, are the latest evidence that inflation is under control, giving the Federal Reserve Board little incentive to raise interest rates when it meets early next month.

The data are “going to make it very difficult for the Fed to raise rates,” said Bruce Bittles, market strategist at J.C. Bradford.

Stocks were aided by falling interest rates in the bond market.

U.S. bonds rallied after the government’s productivity report was released, sending yields to their lowest in nearly four months.

“There are no inflation pressures out there whatsoever,” said Scott Grannis, who helps manage about $30 billion of fixed-income securities at Western Asset Management in Pasadena.

Grannis said the report, coupled with evidence that consumer demand is ebbing, will help drive 30-year Treasury yields down to 6.5% by the end of June and 6% by year-end. The Fed won’t raise interest rates again because the economy is slowing on its own, he speculated.

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As the price of the benchmark long bond rose, its yield fell to 6.72% from Thursday’s 6.77%.

Yields are now at the lowest since Feb. 25, the day before Fed Chairman Alan Greenspan warned in congressional testimony that the central bank was prepared to raise rates as a “preemptive” strike against inflation.

The market also got a contrarian lift from the American Assn. of Individual Investors, which said its index of bullish sentiment among stock investors fell to 49% from last week’s 52%, while the percentage of bears rose to 16% from 15%.

Experts usually view a drop in bullish sentiment positively, because it means that investors are more cautious and less likely to bid prices sharply higher.

Among Friday’s highlights:

* American Express led the Dow higher, rising 3 1/2 to 76 5/8, amid resurrected rumors that it was about to be acquired by Citicorp. Both companies declined comment. Citicorp ended up 1 5/8 at 120 5/8.

Other Dow gainers included DuPont, up 1 1/8 to 58 7/8, and Caterpillar, up 3 to 108 3/4.

* Tobacco issues rose amid heightened optimism that negotiations will succeed in resolving liability lawsuits with dozens of states.

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Philip Morris rose 1 3/4 to 46 1/4, and RJR Nabisco Holdings advanced 1/2 to 34 1/2.

* Technology issues also advanced. Intel, which announced price cuts on its Pentium chips, added 1 3/32 to 144 3/4, and Adaptec, whose chairman of 12 years announced his retirement this week, gained 1 3/8 to 35 13/16.

But Netscape Communications fell 1 1/16 to 32 1/4 after saying it is investigating a potential bug found in versions of its Internet browser.

* Transportation issues, which had been lagging the market, caught fire, with the Dow Jones transportation index rising 50.73 points, or 1.89%, to 2,741.67.

UAL rose 2 3/8 to 75, and AMR added 2 1/8 to 96.

* Advest Group soared 5 1/8 to 23 1/4 on reports it has received takeover overtures from two Boston banks.

European stock markets ended higher, with Frankfurt’s DAX adding 1.75% and London’s FTSE-100 index climbing 0.54% to another record. But Tokyo’s Nikkei dipped 0.18%.

Market Roundup, D4

* WHOLESALE FALL

May’s producer price index declined for the fifth straight month to 0.3%. D2

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