News on Rates Slows Stocks; Dow Adds 6.76
Wall Street blue chips closed modestly higher Monday, but the broader market ended mixed as investors grew wary that the Federal Reserve may soon tighten monetary policy.
The Dow Jones index of 30 industrials rose 6.76 to 2,081.44, with advancing issues staying about even with declining issues in nationwide trading of New York Stock Exchange-listed stocks.
NYSE volume came to 123.48 million shares, up from 72.09 million Friday.
Alfred Goldman, a vice president at A. G. Edwards & Sons Inc. in St. Louis, called Monday’s session “inconclusive,” and said countervailing forces in the market left prices little changed.
“On one side of the coin we have a deep oversold condition and a market that is very under believed,” Goldman said.
Banks Raise Prime
Ordinarily, that would move prices higher, but negative influences such as rising interest rates were holding stocks in check, Goldman said. “The market is responding in a very uncertain, indecisive way,” he said.
Analysts attributed the mixed finish to expectations of Fed credit tightening, which were heightened Monday morning when several major banks raised their prime lending rate to 10.5% from 10%. The prime rate is the interest rate at which banks lend to their preferred corporate clients.
The prime hike was expected and therefore did not cause a sharp drop in share prices, analysts said, but it sharpened expectations that the Fed will raise the discount rate, the interest rate it charges banks for short-term loans, and unnerved some investors.
A sharp rise in oil prices, which gained more than $1.50 a barrel in New York on news of an OPEC output agreement, also strengthened expections of higher inflation and of further interest rate hikes, some analysts said. The benchmark U.S. crude oil, West Texas Intermediate for January delivery, rose $1.06 to close at $15.03 a barrel.
Analysts said strength in the dollar, which firmed Monday on the expectation of higher interest rates, lent some support to stocks. But traders said volume continued to be extremely light and said there was a lack of institutional participation.
They also said investors chose to stay on the sidelines before today’s release of revised figures on the U.S. third-quarter gross national product and Friday’s November employment figures, both of which may give clues to the Fed’s near-term monetary policy.
Most of the change in the Dow Jones index was due to IBM, which rose 2 7/8 to 118 7/8. The American Arbitration Assn. said it would disclose today its resolution of a software copyright dispute between IBM and Fujitsu Ltd., Japan’s biggest computer company.
RJR Nabisco rose 1 to 89 as speculators bid up the food and tobacco giant’s stock on the hunch that fattened offers would emerge in the auction for the company. The deadline for a second round of bids for RJR Nabisco was scheduled to expire at 5 p.m. today.
Japanese stocks closed sharply lower Monday on worries about higher oil prices and interest rates. The Nikkei 225-share index fell 380.27 to 28,983.32 after losing 43.06 Saturday.
Shares ended lower in London after recouping early losses as British players assessed Wall Street’s muted response to U.S. prime rate increases. The Financial Times 100-share index ended down 13.2 at 1,781.5, having touched a low of 1,775 earlier.
