Takeover News Spurs Market; Dow Up 11.95
The stock market rallied Tuesday, extending its gains for a sixth straight session as news of a fresh blockbuster takeover bid lured bystanders back into the market.
The Dow Jones industrial index finished up 11.95 at 2,514.61, but that was well below its high for the day as profit taking eroded some of the market’s early gains.
Gaining issues outnumbered losers by about 8 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 926 up, 579 down and 500 unchanged.
Big Board volume totaled 171.59 million shares, up from 131.87 million Monday.
Tobacco issues led the advance, buoyed by a $21.2-billion bid for Britain’s BAT Industries PLC by raider Sir James Goldsmith and two of his associates.
The bid for BAT is the largest in British history and second in size only to another tobacco-giant takeover, Kohlberg Kravis & Co.’s $25-billion bid for RJR Nabisco, which was completed earlier this year.
News of the bid for BAT boosted tobacco shares by fueling takeover speculation in the group and highlighting their bargain prices relative to their strong growth prospects, analysts said.
“The strength started in American Brands and Philip Morris and then spread to food stocks--anything you put in your mouth,” said Trude Latimer at Josephthal & Co.
Stock prices closed well below their session highs, however, as the market’s advance spurred investors to take profits and triggered futures-related selling.
The Dow index previously touched a session high of 2,531.11, a level of strong resistance.
American Depositary Receipts for BAT, traded on the American Stock Exchange, jumped 2-15/16 to 14 3/8 on news of a $13.94-a-share bid from Goldsmith’s group. The stock was the most actively traded on the exchange, with 7.07 million shares changing hands.
Tobacco and food giant Philip Morris Cos. rose 2 1/8 to 143 3/4 in sympathy, while American Brands Inc. gained 1 1/2 to 71 3/8. UST Inc. climbed 1 1/8 to 26 7/8, and Loews Corp. advanced 2 3/4 to 115 5/8.
Another gainer among the blue chips included International Paper, up 3/4 to 47 1/4, which announced improved second-quarter income.
UAL, recently pushed aloft by takeover talk, pulled back by 2 7/8 to 165 5/8. The American Stock Exchange index rose 1.59 to 366.03, its third-highest close; trading volume was the heaviest so far this year, with 18.4 million shares changing hands Tuesday.
Tokyo stocks also closed higher in light trading with institutional investors staying on the sidelines awaiting signs that Japan’s shaky political situation will be resolved. The 225-share Nikkei index added 70.75 to close at 33,746.77 after slipping 27.95 on Monday.
Stock prices soared in London after the unexpected takeover bid for BAT. The Financial Times-Stock Exchange 100-share index rose 55.7 to 2,250.9.
Currency
The dollar ended higher against key foreign currencies after major banks again failed to follow Chase Manhattan Bank’s cut in the prime lending rate.
Gold prices eased. On the Commodity Exchange in New York, gold bullion for current delivery fell $3.10 to $381.50 an ounce. Republic National Bank of New York quoted a late bid for gold at $379 an ounce, down from $382.50 on Monday.
Also helping the dollar Tuesday was an increase in trading of the West German mark against Britain’s pound sterling and the Japanese yen.
The dollar rose 0.34 yen to 139.62 yen in Tokyo and was quoted at 140.25 yen in London and at 140.75 yen in New York, up from 130.20 yen Monday.
The dollar was stronger against the British pound. It cost $1.6270 to buy one pound in London, cheaper than $1.6410 late Monday. Sterling fetched $1.6235 in New York, down from $1.6390.
Gold eased in London to a late bid of $380.25 an ounce, compared to late Monday’s $381.75. In Zurich, Switzerland, it fell to $379.75 from $383.45. Earlier, in Hong Kong, gold fell $1.49 to close at $381.78.
Commodities
Prices of frozen pork belly futures sank below 30 cents a pound on the Chicago Mercantile Exchange amid renewed concern about the glut of bellies clogging the nation’s commercial freezers.
Hog futures also retreated while cattle futures rose.
On other markets, grains and soybeans were sharply lower, energy futures advanced and precious metals were mixed.
Frozen pork bellies settled 0.43 cent to 1.80 cents lower, with the contract for delivery this month at 28.97 cents a pound, matching the nine-year low reached May 31.
The trading reflected expectations that a weekly exchange report would show no significant decline in the amount of pork bellies in cold storage outside Chicago.
The report, issued after trading closed, showed an unexpectedly large drawdown of 4.6 million pounds, which analysts said could prompt buying of futures today.
But frozen stocks of bellies, which are cured and sliced to make bacon, still are believed to be at near-record levels as the end of the heaviest usage period approaches.
Charles Levitt, chief livestock market analyst for Shearson Lehman Hutton Inc., said he expects the Agriculture Department’s July 21 cold-storage report to show about 128 million pounds of frozen bellies on hand as of July 1, which would be the second-highest total on record for that date and 1 1/2 times the 10-year average.
The July 1 record high was 133.2 million pounds in 1964.
Credit
Most bond prices finished unchanged to lower in thin trading, after an early advance stalled.
The Treasury’s closely watched 30-year bond ended down 5/16 point, or about $3 for every $1,000 in face value. Its yield, which moves in the opposite direction from price, rose to 8.03% from 8% late Monday.
Earlier in the session, the yield briefly had dipped to 7.97%--the lowest level since April 8, 1987.
The federal funds rate, the interest on overnight loans between banks, finished at 9.188%, unchanged.
