Dow Skids 20 as Interest Rates Rise

A falling dollar and rising interest rates sent stock prices broadly lower Thursday, pinning the Dow Jones industrial index with its largest loss since the first session of 1989.

“Bonds were sloppy, currency was sloppy. It was the first excuse to take profits we’ve had in awhile,” one trader said.

The Dow index fell 20.17 to 2,323.04, for its biggest point drop since it lost 23.93 on Jan. 3.

Declining issues outnumbered advances by about 2 to 1 in nationwide trading of New York Stock Exchange-listed issues.

Big Board volume totaled 224.22 million shares, up from 189.42 million on Wednesday.

The dollar fell in foreign exchange trading, and prices of long-term government bonds, which move in the opposite direction from interest rates, dropped more than $16 for each $1,000 in face value.

Honeywell’s Price Jumps

Trading activity on the Big Board was swollen by dividend-related transactions in three stocks--Houston Industries, down 1/4 at 28; Philadelphia Electric, unchanged at 20 7/8, and Allied-Signal, down 3/8 at 35.

Honeywell Inc. shares jumped 3 points to 67 amid rumors that Unisys Inc. would make a bid for the company. Unisys shares closed unchanged at 29 5/8.

Analysts said they were skeptical about such a deal, saying that Honeywell could fetch a price of about $4 billion.

Stock prices on the Tokyo Stock Exchange closed mixed in active trading Thursday after a strong morning rally that propelled the key Nikkei indicator to its fifth consecutive record high. The Nikkei 225-share index added another 13.31 points to close at a record 32,078.43.

On the London Stock Exchange, prices dropped sharply in erratic trading punctuated by concerns about interest rates. The Financial Times 100-share index closed off 17.1 points at 2,079.1.

CREDIT

Bond prices plunged amid extremely weak demand in the government’s $9.5-billion quarterly debt-refinancing auction on 30-year bonds and a slumping dollar.

The Treasury’s benchmark 30-year bond fell 1 5/8 points, or $16.25 for every $1,000 in face amount. Its yield, which moves in the opposite direction from its price, rose to 8.89% from 8.83% late Wednesday.

Analysts said the weak reception to the Treasury’s 30-year bond sale and a declining dollar dragged down the price of bonds in the largest slump for the benchmark issue since early November.

“The combination of the two was enough to put the kibosh on the long bond,” said Irwin L. Kellner, chief economist at Manufacturers Hanover Trust Co. “The bond market got killed.”

Analysts said expectations that President Bush’s budget message Thursday would contain nothing new on eliminating the federal deficit also added a cautionary tone.

William V. Sullivan, director of money market research at Dean Witter Reynolds Inc., said the market weakened gradually during the day as it became evident that demand was poor, especially from foreign investors.

The Japanese are among the biggest buyers of U.S. debt securities, and their demand fell far short of expectations in the 10- and 30-year sales in the three-part refunding this week.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 9.125%, down from 9.50% late Wednesday.

CURRENCY

The dollar dropped sharply Thursday as traders speculated that President Bush would say nothing new in his budget message about cutting the federal deficit.

In its biggest one-day decline in weeks, the dollar lost roughly 1.2% of its value against such currencies as the West German mark, Japanese yen, British pound and Swiss franc.

The sharp drop came after several steady sessions in which dealers had been reluctant to trade actively because of uncertainty about what Bush would say in his Thursday evening address.

In Tokyo, where trading ends before Europe’s business day begins, the dollar fell 0.11 Japanese yen to a closing 129.39 yen. Later, in London, it was quoted at 128.53 yen. In New York, the dollar sank to 127.93 yen from 129.38 yen late Wednesday.

In London, the British pound rose to $1.7540 from $1.7423 late Wednesday. In New York, the pound rose to $1.7645 from $1.7440.

Other late dollar rates in New York, compared to late Wednesday’s rates, included: 1.8475 West German marks, down from 1.8698; 1.5675 Swiss francs, down from 1.5895; 1.1836 Canadian dollars, down from 1.1844; 6.2875 French francs, down from 6.3640, and 1,347.5 Italian lire, down from 1,363.6.

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