Dow Hits Record High of 2,810.15 on Gain of 56.95

NEW YORK —  The stock market began the New Year on Tuesday with a burst of energy that drove the Dow Jones industrial average up 56.95 points to 2,810.15, an all-time high and its first ever close above 2,800.

The market, which has bubbled with hope for several weeks, was helped by bargain hunters, who snatched up several automotive and high-technology stocks that have been neglected in recent months. The surge was capped by computer-directed program trading, which lifted the Dow nearly 40 points in the day’s final hour, traders said.

Also cited as a cause of the rise was the so-called “January effect,” a pattern of New Year rallies triggered when tax-related selling ceases and money from big institutions is reinvested in stocks.

“I was frankly caught by surprise at the size and breadth of the move,” said Michael Metz, a market analyst with the securities firm of Oppenheimer & Co. in New York.

The rally that started at year’s end has now lifted the closely watched average 122.22 points, or 4.5%, in the last seven trading sessions. Analysts said that investors are looking past the current slowdown in the economy and are concentrating on restrained inflation, falling interest rates and an economic recovery that many analysts expect to see in the year’s second half.

The gain was the largest since the 88.12-point advance that followed the “mini-crash” of last Oct. 13. Tuesday’s move easily topped the Dow’s previous high of 2,791.41, set on Oct. 9.

After an opening round of selling, stocks reversed direction amid better-than-expected news contained in a December survey of corporate purchasing managers. The index of economic activity derived from the survey stood at 48 for the month, indicating that manufacturing was still weakening but was stronger than many thought. The index has been below 48 since last June.

Also a plus in the market was the strength of the dollar. The strength suggested that the Federal Reserve could lower interest rates further without worrying about a collapse in the currency. A fall in the dollar would, among other things, increase the price of imports and contribute to inflation, analysts said.

As stocks rose, they stimulated buying by investment managers who were holding large cash reserves but didn’t want to miss out on the move. Also forced to buy were so-called “short sellers,” who needed to acquire stocks to cover their earlier bets that share prices would fall.

“This was a powder-keg advance that didn’t allow the virtue of patience,” said Eugene Peroni Jr., chief market strategist at the brokerage firm of Janney Montgomery Scott in Philadelphia. “You had to make quick, strong decisions.”

Although bearish analysts continued to fret about weak fourth-quarter corporate earnings reports expected to be released later this month, there was no lack of optimistic predictions that the advance will continue.

Peroni said that the market is now poised to fulfill his long-standing prediction that the Dow will rise to between 2,900 and 3,200 in the first half of 1990. Metz, noting that the Dow gained 585 points, or 27%, in 1989, said 1990 will be “another great bull market.”

Trading volume on the New York Stock Exchange Tuesday was a relatively light 160 million shares, compared to 145.9 million on Friday.

Other key market indicators moved smartly but fell short of their record highs. The Standard & Poor’s 500-stock index advanced 6.29 to 359.69, just short of its record of 359.80, set Oct. 9. The New York Stock Exchange composite index rose 2.96 to 198.00.

Advancing issues led decliners by about 3 to 1, as 1,250 issues finished higher and about 400 closed lower.

Among the surging high-tech stocks were International Business Machines, up $3.75 to $98.125 on Big Board composite volume of 1.8 million shares. Unisys rose 75 cents to $15.50, on 1.4 million shares, Compaq Computer gained $3.50 to $83, Hewlett-Packard rose $2 to $49.25, Digital Equipment moved up $2.125 to $84.125 and Motorola advanced $2.875 to $64.25.

In the auto sector, General Motors rose $2.25 to $44.50, Ford climbed $1.625 to $45.25 and Chrysler advanced $1.125 to $20.125. The stocks were not hurt by the release of December auto sales figures, which were in line with expectations.

Toys R Us stock soared $3.50 to $39.375 on news that sales for its eight-week Christmas season were up 22.7% from a year earlier. Wal-Mart Stores rose $2.75 to $47.375, as Woolworth gained $1.75 to $66, K mart moved up $1.50 to $36.50 and Limited Inc. added $1.25 to $36.25.

Of the 30 stocks in the Dow Jones average, only American Express and Exxon did not advance in the day’s trading. American Express was unchanged, and Exxon lost 12.5 cents, falling to $50.

In Tokyo, the Japanese financial markets were closed Tuesday for the New Year holiday and will reopen on Thursday.

In London, stocks closed higher in quiet trading, helped by firmer prices in early trading on Wall Street. The Financial Times 100 index closed up 11.4 points at 2,434.1, within sight of its record closing high of 2,443.3, set July 16, 1987.