The stock market resumed its feverish pace yesterday as the Dow Jones industrial average surged 43.10 points for its second-biggest gain ever.
When trading was over, the closely watched average stood at a new record of 1,746.05. That was almost 350 points higher than in November, when the most recent bull-market drive began.
The biggest one-day gain ever recorded was on Nov. 3, 1982, when the Dow rose 43.41 points.
New highs were set, too, by the New York Stock Exchange Index, the American Stock Exchange Index and the Standard & Poor's 500 stock index.
On the New York Stock Exchange, 187.27 million shares changed hands, making it the fifth-largest trading day. Advancing stocks led losing stocks by about 4 to 1.
Analysts said the powerful advance was the result of the continued free fall in interest rates and the fading of the forces of inflation. Stocks rose across the board in almost all major sectors, with mutual funds and other financial institutions providing most of the action. Since the Dow first closed above 1,700 on Feb. 27, the market has been backing and filling.
"We had all burners cooking today," declared Michael H. Sherman, chairman of investments at Shearson Lehman Bros.
The avalanche of buying got a powerful push from the computer-assisted "buy programs" that large brokerage houses and pension funds use to profit from the difference between the prices of stocks and stock-index futures. By one informed estimate, $150 million to $200 million worth of stocks were bought during the day by brokerage firms engaged in "basket trades."
Basket trading is controversial because when it comes time to sell them, the programs can help take the market down just as sharply.
The buying programs are part of an arbitrage technique in which multimillion-dollar baskets of stocks are bought and futures contracts on stock indexes are sold simultaneously. Once the investor locks in the spread between the two prices, he is guaranteed a profit virtually without risk.
Rising oil stock prices also helped give the market a strong upward push after a First Boston Corp. analyst recommended several oil companies on the basis that producers soon would take steps to curb the oil glut and boost prices.
"The stock market was playing catch-up with the bond market," said Charles S. Comer, market analyst at Oppenheimer & Co. A powerful rally in the bond market during the last 10 days has spilled over into the stock market, he noted, and drew new strength from the recent cut by the Federal Reserve Board in the discount rate, the interest it charges banks for loans.
"As of today," Comer said, "the euphoria is back." He said he thought that stocks were "getting a little pricey," but added, "You can't fight the tape."
As interest rates continued to slide, the prices of long-term government bonds, which move in the opposite direction from interest rates, gained $5 to $10 for every $1,000 in face value.
Several analysts said the bond market also was anticipating that business statistics to be released this week would show the economy to be sluggish. Bond buyers believe a sluggish economy reduces inflationary pressures and thus helps lower interest rates, which tends to raise bond prices.
Robert G. Errigo, director of equity research at Merrill Lynch, said his firm's present target for the Dow Jones index was 1,850, with the possibility of a 5 to 10 percent correction. "The thing that continues to drive the market is interest rates," Errigo said.
Among the depressed energy stocks that benefited from buying interest in that sector were: Exxon, up 2 1/8 to 54 1/2; Amoco, up 3 to 57 3/4; Mobil, up 2 5/8 to 29 1/2; Occidental Petroleum, up 1 7/8 to 24 7/8; Atlantic Richfield, up 1 3/8 to 51, and Chevron, up 1 5/8 to 36 5/8.