Stocks Rally as Interest Rates Fall; Dow Up 10
Stocks rallied Friday, pulling out of a three-session slump as interest rates tumbled in the credit markets.
The Dow Jones average of 30 industrials climbed 10.86 to 1,300.96, cutting its loss for the week to 15.46 points.
Before the opening, the government reported that industrial production posted a seasonally adjusted 0.1% decline in May.
Separately, the Labor Department said the producer price index of finished goods rose a seasonally adjusted 0.2% in the same month.
Those combined signs of sluggish business activity and low inflation raised hopes that the Federal Reserve might soon take further steps to relax its credit policy. Specifically, there was talk of another reduction soon in the Fed’s discount rate, which was lowered to 7.5% from 8% last month.
Volume Slows
In the credit markets, rates on short-term Treasury bills fell nearly a quarter of a percentage point. Prices of long-term government bonds, which move in the opposite direction from interest rates, rose by $10 to $15 for every $1,000 in face value.
On the Big Board, volume slowed to 93.09 million shares from 107.03 million Thursday. The number of large-block trades--those involving 10,000 or more shares--totaled 1,910, compared to 2,091 on Thursday. Advancing issues outnumbered declines by two to one.
International Business Machines, which sold off sharply Wednesday and Thursday after the company said its outlook for the remainder of the year had worsened, rebounded 2 1/2 to 121 1/8. IBM ranked as the volume leader among Big Board issues with more than 1.75 million shares changing hands.
Sperry, Burroughs Fall
Sperry dropped 1 to 55 1/2 and Burroughs lost 1 to 55. The market has registered a negative response to the news early Thursday that the two companies were engaged in merger talks.
Mortgage and savings and loan stocks posted strong gains on the day’s interest-rate declines. Federal National Mortgage rose 1 1/8 to 20; H. F. Ahmanson rose 1 5/8 to 36; Great Western Financial climbed 5/8 to 27 3/4; CalFed rose 7/8 to 23 5/8, and American Savings & Loan of Florida gained 1/2 to close at 7 1/2.
Gainers in the utility group, which is also sensitive to changing interest-rate expectations, included Consolidated Edison of New York, up 1 at 37 3/8; Minnesota Power & Light, up 1/2 at 37; Duke Power, up at 34 1/2, and Southern California Edison, up 1/2 at 27 5/8.
Trans World Airlines dropped 1/2 to 19 3/4 and Texas Air, traded on the American Stock Exchange, rose 7/8 to 14. Late Thursday, an agreement was announced under which Texas Air would acquire TWA for $19 a share in cash plus $4 face amount of a new preferred stock.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 111.25 million shares.
Among other indicators, the New York Stock Exchange’s composite index gained 0.87 to 108.56; the Wilshire index of 5,000 equities closed at 1,930.132, up 14.287; Standard & Poor’s index of 400 industrials rose 1.91 to 206.44; S&P;’s 500-stock composite index was up 1.77 at 187.10; NASDAQ’s composite index for the OTC market added 1.02 to 287.95, and the American Stock Exchange’s market-value index closed at 225.73, up 0.84.
The federal funds rate, the interest on overnight loans between banks, traded at 6.5%, down from 7.438% late Thursday.
Bond prices rose sharply but finished below their highs of the day. Analysts said some traders were disappointed that the Fed failed to cut its discount rate.
A small commercial bank in New York City, Freedom National Bank, announced late Friday that it was cutting its prime lending rate to 9.5% from 10%. No major banks followed suit.
The prime rate--a benchmark used by banks use to measure interest charges on short-term business loans--has not been below 10% since the fall of 1978.
In the secondary market for Treasury bonds, prices of short-term governments rose point, intermediate maturities were up 5/8 point and long-term issues were up nearly a full point, according to the investment firm of Salomon Bros. A point represents a change of $10 for every $1,000 in face value of a bond.
In corporate trading, industrials and utilities rose a full point in light trading. Among tax-exempt municipal bonds, general obligations were unchanged and revenue bonds a rose 1/2 point, Salomon Bros. said.
