FINANCIAL MARKETS : Stocks Show Little Change; Dow Slips 3.49
Stock prices were little changed Friday as the market absorbed the news of a bigger-than-expected increase in producer prices.
The Dow Jones index of 30 industrials slipped 3.49 to 2,513.42, finishing the week with a net loss of 4.41.
Advancing issues and declines ran about even in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volume came to 173.24 million shares, down from 212.31 million Thursday.
The Labor Department reported that the producer price index of finished goods rose 0.9% in May, substantially outpacing advance estimates by brokerage-firm economists.
Analysts said the news dampened hopes that the Federal Reserve would continue any time soon with what in recent days seemed to be the start of a move to relax its credit policy.
Nevertheless, some observers said they were impressed with the market’s relatively calm reaction to the news. Unexpected jumps in the producer price index earlier this year touched off sharp declines in stock prices.
The blow apparently was cushioned this time by several factors, including continued strength of the dollar in foreign exchange and a strong bond market.
USX ranked among the volume leaders, up 1 at 38 on renewed speculation that financier Carl C. Icahn, who has a large stake in the company, might be planning a takeover or some other transaction.
Syntex, a frequent subject of takeover talk, gained 2 to 54.
Sea Containers Ltd. jumped 4 7/8 to 65 1/4. The company rejected an unsolicited offer from the European companies Tiphook PLC and Stena AB.
Losers among the blue chips included International Business Machines, down 7/8 at 108 3/8; General Motors, down 1/4 at 41 1/4, and Eastman Kodak, down 1/2 at 50 3/8. Kodak shares had run up lately on takeover rumors.
Stock prices ended the session slightly lower in thin trading Friday on the Tokyo Stock Exchange, still shadowed by the upheaval in China. The Nikkei 225-share index, which gained 91.40 Thursday, fell 78.31 to 33,639.98.
Prices on London’s stock exchange recovered to end mixed after the sharp rise in U.S. producer prices pushed the market lower. The Financial Times 100-share index fell 1.3 to 2,142.1.
Currency
The dollar soared against major foreign currencies in a powerful buying wave touched off by the unexpectedly high producer price index, strength in the bond market and continuing tension in the Far East.
Gold prices sank as much as $15 an ounce amid profit taking.
John McCarthy, chief dealer at the New York office of Amsterdam Rotterdam Bank, said currency dealers drove the dollar past several psychologically significant thresholds against the West German mark.
At the end of trading in New York, the dollar stood at 2.010 marks, up from 1.9725 Thursday.
The PPI figure, which exceeded economists’ estimates, revived speculation that U.S. interest rates might have to remain high for now to prevent inflation from veering out of control. High U.S. rates make returns on dollar-denominated investments attractive, which tends to encourage dollar buying.
Before the report, a belief was spreading that the Federal Reserve would soon relax its guarded credit stance and allow interest rates to recede.
Bullion dealers said the market reacted to the higher dollar by selling to profit on the precious metal’s gains earlier in the week.
Gold fell in London to a late bid of $363.25 an ounce, compared to $373.25 late Thursday. In Zurich, Switzerland, gold closed at a bid of $368.05, compared to $374.35 late Thursday.
Later on the Commodity Exchange in New York, gold bullion for current delivery fell to $358.10 from Thursday’s settlement of $373.50.
Credit
Bond prices surged, pushing long-term interest rates to their lowest level in more than two years despite the bigger-than-expected rise in a key inflation indicator.
The bellwether 30-year Treasury bond climbed by about 1.625 points, or $16.25 for every $1,000 in face amount.
The bond’s yield skidded to 8.14%--the lowest since it finished at 8.06% on April 9, 1987--and down from 8.29% late Thursday.
Nonetheless, the federal funds rate slipped to 9.125%, down from 9.375% late Thursday. The funds rate is the interest that banks charge each other for short-term loans. The Federal Reserve can influence the rate by buying or selling securities in the open market, thereby adding to or draining the reserves within the banking system.
Commodities
Prices of precious metals futures plunged on New York’s Commodity Exchange, with both gold and silver reaching new contract lows.
On other markets, grain and soybean prices were mostly lower, livestock prices were higher, meat futures were lower and energy prices slipped.
Before Friday’s producer price index report, many economists had predicted a moderate-to-brisk 0.5% gain in the index. Selling in the futures markets snowballed during the day.
Gold settled $15.40 to $18.80 lower, with the contract for delivery in June at $358.10 an ounce; silver was 28.1 to 33.5 cents lower, with June at $5.162 an ounce.
“This is the biggest decline we’ve had in a year,” said Craig Sloane, an analyst with Smith Barney, Harris Upham & Co. “It is also a disappointment for all those who thought Tuesday’s rally, the best this year, was a sign the market had bottomed out and was starting an upswing.”
Gold prices jumped $13.60 on Tuesday.
Grain and soybean futures prices closed mostly lower on the Chicago Board of Trade, with wheat futures breaking out of a three-day slump caused by conditions in China.
Wheat prices also reacted to weekend weather forecasts that call for heavy rain in winter wheat crop areas, analysts said. The rain is expected to interfere with harvesting.
