Dow soars 130 points
to top 7,400

Investors like the Treasury Secretary's
comments that inflation is in check

NEW YORK -- The Dow Jones industrial average shot above 7,400 for the first time today as bonds rallied amid suggestions of strong foreign demand and more assertions that inflationary pressures will remain mild.

The Dow surged 130.49 points to close at 7,435.78, easily beating May 27's record close at 7,383.41.

Broader indicators also soared to record highs, although blue-chip issues clearly carried the day, outperforming smaller-company shares for the first time in many sessions.

Stocks started the day modestly higher, but took off as interest rates sank in the bond market, which rallied following an upbeat assessment of the economy by Treasury Secretary Robert Rubin, who asserted that the "probability is very high that inflation will remain at low levels."

There was a mixed reaction to this morning's anxiously awaited employment report. Stocks drew an early boost from data showing that wage and payroll levels -- two key forces behind inflation -- rose less than expected in May.

Bond traders, however, focused on the news that the nation's unemployment rate, already the lowest in a generation, fell further last month to 4.8 percent. That reading means employers are still facing a labor shortage that could force them to raise wages -- and prices -- so they can keep up with heavy consumer demand.

The Federal Reserve, looking to ease demand, raised one of its key lending rates in March, but took no action at a strategy meeting last month. Some investors worry that any signs of a strong economy will increase the likelihood that the Fed will raise rates again at its meeting on July 1.

The prospect of rapid inflation can make fixed-income investments such as bonds less enticing, forcing down prices to improve the yield. Higher interest rates at the Fed or the bond market can hurt stocks by slowing consumer borrowing and spending.

As bonds rose today, the yield on 30-year Treasury bonds, which move in the opposite direction from prices, fell from 6.87 late yesterday to 6.78 percent, the lowest level since late February.

On the New York Stock Exchange, advancing issues led decliners by a 12-to-5 margin on the New York Stock Exchange, with 1,764 up, 732 down and 883 unchanged. NYSE volume totaled 488.35 million shares vs. 452.62 million yesterday.

The Standard & Poor's 500-stock list rose 14.58 to 858.01, and the NYSE index climbed 6.49 to 448.13, new highs for both measures. The Nasdaq index rose 14.80 to 1,404.85.

The Russell 2000 list of smaller companies rose 2.14 to 387.13, its ninth record finish in 11 sessions. The American Stock Exchange composite index, which is dominated by smaller companies, rose 3.90 to 614.65, moving within 3 points of its first record close in more than a year.

Meanwhile, in currency market trading, the dollar fell to 114.60 yen, down from 115.72 yen late yesterday in New York.

A report today in Japan's Nihon Keizai newspaper asserting that the Group of Seven industrialized nations would ask Japan to suppress its trade surplus at their summit in Denver this month also hurt the dollar. The yen's weakness against the dollar is a key reason why the Japanese surplus has grown.