Stocks Edge Lower; Dow Declines 4.12 : Investors in Cautious Mood Over Tensions Between U.S., Libya
The stock market was little changed Friday in a session marked by caution over the tensions between the United States and Libya.
The Dow Jones average of 30 industrials, up about 8 points in the early going, finished with a 4.12-point loss at 1,790.18. That trimmed the average’s gain for the week to 50.96 points.
Volume on the New York Stock Exchange slowed to 139.44 million shares from 184.76 million Thursday, when the total was swollen by a single block of more than 48 million shares of Navistar International.
The stock and bond markets got a lift this week from speculation that the Federal Reserve Board might soon reduce its discount rate, which stands at 7%. Friday’s economic news served to heighten those hopes.
Producer Prices Fall
The Labor Department reported that the producer price index of finished goods dropped 1.1% in March. And the Commerce Department said retail sales declined 0.8% in the same month.
Analysts said a sluggish economy, with inflation at bay, provides a good setting for further moves by the Fed to relax its credit policy.
Even though interest rates have lately fallen to their lowest levels since the 1970s, many observers believe that there is room for them to drop further as long as inflation does not revive. However, brokers said enthusiasm over the interest rate outlook was offset by caution heading into the weekend about the possibility of new military action against Libya.
International Business Machines dipped 1/2 to 149 3/4. Analysts noted no clear-cut response to the company’s report that first-quarter earnings came to $1.65 a share, against $1.61 in the comparable period a year earlier.
Gerber Products rose 3 5/8 to 51 3/4. The company, responding to takeover rumors, said it knew of no reason for the recent activity in its stock.
Sperry, also discussed as a possible takeover candidate, gained 1 to 55 1/2.
Resorts International Class A shares, traded on the American Stock Exchange, jumped 17 3/8 to 66 3/4. News of the death of James Crosby, the company’s chairman, led to speculation that the company might become a takeover target.
Texaco-Pennzoil Rumors
Texaco climbed 1 7/8 to 32 3/4 and Pennzoil fell 4 to 51. Late in the session, Pennzoil denied reports that a settlement had been reached in its legal dispute with Texaco over the latter’s acquisition of Getty Oil.
Bond prices fell moderately in skittish trading.
A midday rumor--which later turned out to be false--that the United States had engaged in a military operation against Libya sparked some selling, said Geoffrey L. Kurinsky, an economist for Boston-based Technical Data Corp., a fixed-income analysis firm. “But even more, people were concerned that the Fed was going to hold off on a discount rate cut--which had been priced into this market until this morning,” he said.
The federal funds rate--the interest rate banks charge to each other for short-term loans--traded at 6.75%, down from 7.125% late Thursday, fueling speculation that the discount rate would be cut.
“Typically, the Fed lets the funds rate ease and follows through with a cut in the discount rate,” Kurinsky explained.
“When the funds rate slid below 7%, a lot of people thought it was paving the way for a cut. But then, as people talked, it was felt the reason was technical, as opposed to a policy maneuver,” Kurinsky said.
Also contributing to the market’s disposition Friday was a general nervous expectation that a correction was due after its strong recent gains.
In the secondary market for Treasury bonds, prices of short-term governments fell 4/32 point, intermediate maturities fell 10/32 point and long-term issues were down 24/32 point, according to the investment firm of Salomon Bros.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.34 to 119.65. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 2.40 to 1250.80.
In corporate trading, industrials and utilities fell 3/8 point in light trading.
Among tax-exempt municipal bonds, general obligations fell 3/4 point and revenue bonds were down 1 point.
