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Dow Jones Average Climbs over 4,000 for First Time

By Tom Petruno
Los Angeles Times

The Dow Jones industrial average surged and closed above the historic 4,000 level for the first time Thursday, in a rally fueled by Wall Street's increasing conviction that interest rates have peaked and that the economy is headed for slower - but still positive - growth.

The United States' most widely watched stock index jumped 30.28 points to 4,003.33, the first close above a "millennium" mark since the index reached 3,004 April 17, 1991.

The rally, the latest stage of a stock market advance that began in mid-December, followed Federal Reserve Board Chairman Alan Greenspan's most upbeat comments to date on the central bank's outlook for interest rates, inflation and U.S. economic growth.

In two days of congressional testimony that concluded Thursday, Greenspan suggested the Fed may be finished tightening credit, after seven interest-rate hikes that have doubled short-term rates over the past 13 months to about 6 percent.

Moreover, Greenspan for the first time indicated the Fed is looking ahead to a point at which it may begin lowering rates again, to assure that the economy doesn't fall into recession.

On Wall Street, Greenspan's choice of words were viewed by many investors as a declaration of victory in the Fed's effort to slow the economy to a sustainable, low-inflation growth pace - an environment widely considered to be ideal for many U.S. companies and for the stock market.

"We're seeing a growing number of signs that the proverbial soft landing' has been achieved," said John R. Williams, chief economist at Banker Trust New York.

"We think the stock market is going to see higher highs - at least a Dow of 4,300 this year," said Rao Chalasani, market strategist at Kemper Securities Corp. in Chicago.

Other analysts, however, warned that the jury still is out on the economy's trend. Some experts worry that economic growth hasn't slowed as sharply as Greenspan may now believe, while others fear the Fed's 1994 interest-rate hikes were so severe they have already set the stage for a recession later this year.

"There may now be a good deal of concern on the part of the Fed governors" about a recession, said John Lonski, economist at Moodys Investors Service in New York. Greenspan's suddenly dove-ish approach to interest rates could reflect that concern, Lonski said.

Yet the renewed rush into stocks Thursday suggested recession fears remain well in the background for most investors.

For the 30-stock Dow index, which includes such brand-name American companies as Walt Disney, AT&T, Exxon and Eastman Kodak, closing above the 4,000 mark has no fundamental significance for the stock market as a whole.

Indeed, a broader measure of the market's health, the Standard & Poor's index of 500 blue-chip stocks, hit a record high Feb. 14, one day before the Dow finally topped its previous peak set more than a year ago.

But because the Dow is so familiar to the general public, the crossing of a "millennium" mark naturally garners extensive publicity and causes many investors to consider whether to add to - or subtract from - their stock holdings, analysts say.

"People take a very hard look at their portfolios at these Dow points," said Hugh Johnson, veteran market strategist at First Albany Corp. in Albany, N.Y.

At the same time, a new Dow record naturally becomes a reflection, of sorts, of the perceived health of American business and investors' faith in U.S. companies' long-term growth potential.

For example, when the Dow crossed the 3,000 mark, on April 17, 1991, the U.S. economy was technically still in recession, but the United States had emerged victorious in the Persian Gulf War and investors were looking ahead to an economic recovery.

The biggest surprise about Dow-4,000, many analysts say, is how quickly it occurred in the wake of last year's jump in interest rates, one of the steepest in history.

Analysts say stocks have been responding to more than just the possibility that interest rates have peaked:

Strong corporate earnings growth, a byproduct of the economy's health, has underpinned stock prices over the past 13 months, and also allowed many companies to boost dividend payments to shareholders.

Surprising gains in worker productivity have convinced more investors that American companies aren't in danger of losing their "lean and mean" edge over global competitors.