- The Washington Times - Tuesday, July 3, 2007

NEW YORK (AP) — Wall Street soared yesterday in the first day of trading for the third quarter, boosted by a decline in Treasury yields, a rise in June manufacturing activity and a spate of buyout news.

The Dow Jones Industrial Average gained more than 120 points after the Institute for Supply Management”s June manufacturing index came in at 56.0, slightly higher than the market expected and indicating stronger expansion than May”s reading of 55.0. The report also showed a decrease in its prices paid index, suggesting that inflation pressures lifted last month and easing some of the market”s worries about the Federal Reserve”s interest rate policy.

Meanwhile, the 10-year Treasury note”s yield fell below 5 percent from 5.03 percent late Friday, dampened as investors flocked to the safe-haven assets amid ongoing jitters about subprime lending. In mid-June, Bear Stearns & Cos. had to bail out a hedge fund with investments tied to subprime mortgages.

Investors were also enthusiastic about new takeover activity, involving such targets as Canadian telecommunications company BCE Inc., rural wireless provider Dobson Communications Corp. and British telecommunications company Virgin Media Inc.

“There”s favorable economic news and continuing merger talk. That”s a pretty good recipe for the market,” said Stuart Schweitzer, managing director and global markets strategist for JPMorgan Private Bank. He added, though, that the market has been seesawing in recent weeks and trading volumes are light, so the market”s gain should not be interpreted as a turnaround.

“I think the movie”s going to end well this year, but there are still going to be some scenes where we”ll have to take our eyes away from the screen,” Mr. Schweitzer said, pointing to persistent sluggishness in the housing market and nervousness over credit problems.

The Dow rose 127 points, or 0.95 percent, to 13,535.

Broader stock indicators also rose. The Standard & Poor”s 500 Index gained 16, or 1.07 percent, to 1,519, and the Nasdaq Composite Index jumped 29.07, or 1.12 percent, to 2,632.

The combination of retreating yields and reports of fresh buyout activity gave some relief to investors who were worried about business slowing down because of high rates.

“There”s a little positive to the subprime woes, that being that interest rates are dropping now,” said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. The 10-year Treasury note”s yield breached the 5 percent level in early June for the first time since last year, hit a peak of nearly 5.30 percent and has since retreated. High rates can hamper deal-making.