NEW YORK, FEB. 4 -- Stocks soared to their highest levels in six months today, buoyed by optimism that newly lowered interest rates will coax the economy out of recession.
The Dow Jones industrial average surged 41.59 points to 2772.28, an increase of 1.52 percent. The close was the Dow's highest since Aug. 3, the day after Iraqi troops invaded Kuwait, when the blue-chip index ended at 2809.65. Gaining issues led losers by a ratio of about 4 to 1 on heavy New York Stock Exchange volume of 250.75 million.
Banking stocks were among the most active issues and helped steer the rally, analysts said. They were revitalized by Friday's half-point cut in the discount rate, a key Federal Reserve Board lending rate, to 6 percent, and investors were betting the easing of credit would help boost the ailing bank sector, analysts said.
"At the same time, there's the ongoing feeling that the recession may not be as long as anticipated," said Paul Hennessey, a vice president at the Boston Co.
Wells Fargo soared 6 3/8 to 69 3/8, Citicorp rose 1 3/8 to 15 and Chase Manhattan climbed 1 1/4 to 14. Bank-America added 2 1/4 to 32 1/8 and J.P. Morgan rose 2 5/8 to 48 1/2. Bank-America also said it was raising its annual dividend.
"We've had big limit orders to buy on a lot of these stocks," said one block trader at a major brokerage house. "But there's been an awful lot of" preparations for selling, too, he added, lending a technical bias to trading.
Persian Gulf War news seemed to fade into the background as investors focused on domestic fundamentals. Analysts said that as long as developments appear to favor the allies, the war would become less of an influence.
"There's an underlying pent-up demand," said David Chao, head of facilitation trading at County Nat-West. "People have to invest, and they are believing this whole economic scenario that the recession will be short."
On oil markets, trading was slow and prices closed lower, reflecting lessening worries about the impact of the gulf war on oil supplies. On the New York Mercantile Exchange, crude oil for March delivery closed down 20 cents at $21.14 a barrel.
"There's a feeling the war is going successfully and Saudi production is staying high," said James Steel of Refco Inc.
Although the credit markets continued to receive support from more announcements of prime-rate declines by banks across the country, uncertainties tied to the upcoming Treasury refunding this week helped keep a lid on the U.S. 30-year Treasury bond, which closed up 20/32.
Among individual stocks, Dow component Coca-Cola rose a point to 48 1/4 after reporting fourth-quarter net at 44 cents per share, compared with 33 cents a year ago. Results weighed in a penny higher than the mean Wall Street estimate, according to Chicago's Zacks Investment Research.
EMC Corp. dropped 3/4 to 9 1/8 and Cambex Corp. lost 4 3/4 to 13 1/4. An IBM unit is suing both firms over allegations that they converted and misused IBM's computer products.
Shares of San Diego Gas and Electric Co. lost 1 3/8 to 42 3/4 after it said it was concerned about the completion of a merger with SCE Corp.
Amgen Inc. jumped 3 1/2 to 79 1/2. Its Neupogen cancer drug is due to be reviewed for marketing approval in Europe, and Merrill Lynch recommended the stock.
U.S. Surgical rose 4 1/4 to 89 1/2. Its chairman said he was comfortable with analysts' current 1991 estimates.
The NYSE composite index rose 2.88 to 190.28, the Standard & Poor's 500 rose 5.29 to 348.34, the American Stock Exchange index rose 4.12 to 323.15 and the Nasdaq over-the-counter index was up 7.11 to 424.80.