Bonds Rally, Pushing Up Stock Prices --- But Late Selloff Costs Shares Some of Gain; Dollar Finishes Mixed
A bond market rally spread to stocks, pushing prices sharply higher in heavy trading before a late selloff cost the stock market much of its gains. But small stocks set a record. The dollar ended mixed.</br></br>The Dow Jones Industrial Average gained 7.38 points to 3008.72 after rising as much as 30 points earlier in the day to just shy of its record 3035.33. The Standard & Poor's 500-stock index hit an all-time high of 392.08 in intraday trading before ending up 1.60 to 389.62, a little more than one point off its closing record. But small stocks burst decisively higher, driving the Nasdaq Composite Index up 4.40 to 514.40. That eclipsed the previous record of 511.31.</br></br>Traders said the stock market rally was prompted by rising bond prices that drove long-term interest rates sharply lower. The Treasury's benchmark 30-year bond, for example, gained more than a half a point, or more than $5 for each $1,000 face amount, driving the yield on the issue down to 8.16%.</br></br>The trading day started with the Commerce Department reporting that July retail sales rose 0.5%, considerably stronger than the 0.2% that many traders had expected. Bond prices dropped on the news, which implied that the economic recovery remains intact and could eventually spawn higher inflation. Stock prices followed bonds lower.</br></br>But traders said that at midmorning, one or more big institutions began aggressively buying longer-term government securities, seeking to grab the significantly higher yields available on seven, 10 and 30-year notes and bonds. The demand for longer-term notes and bonds drove prices up. And as bond prices rose, stocks followed, spurred on by computer-guided buy programs. While bond prices held their gains, late in the day many stock traders took profits, costing the market much of its earlier gains.