FINANCIAL MARKETS : Dow Dips 1.33, Snapping Its 9-Session Rally
Wall Street’s blue chip stocks ended a nine-session winning streak Monday as the market’s key Dow index strayed slightly lower in an uncertain session.
The market’s transportation issues extended their rally, however, as takeover speculation drove airline stocks higher.
The Dow Jones industrial index finished down 1.33 points at 2,553.49, breaking the longest run of advancing sessions since January, 1987.
In the previous two weeks, the Dow had chalked up gains of more than 110 points, setting three post-crash closing highs by the end of last week, on expectations of falling interest rates and takeover rumors.
Advancing issues just slightly outnumbered declines in nationwide trading of New York Stock Exchange-listed stocks, with 757 up, 713 down and 516 unchanged.
Volume on the floor of the Big Board came to 131.96 million shares, down from 183.48 million in the previous session.
Brokers said the new week began with an added element of caution, however, over the impending monthly report today on the nation’s international balance of trade.
The data for May is expected to show an increase in the trade deficit to $9 billion or more from $8.3 billion in April.
Policy Response
On Wednesday, Wall Street is expecting the Labor Department to report a June increase for the consumer price index of about 0.3%, down from 0.6% in May.
Gene Jay Seagle, director of technical research at Gruntal & Co., noted that the market was somewhat disappointed by the Federal Reserve’s failure to decisively lower interest rates.
The Dow transportation average closed up 18.76 points at 1,229.30, led by a surge in UAL Corp.’s stock, which added 8 to 174 3/4 on a fresh bout of takeover speculation. Many traders believe that a raider is accumulating stock in UAL and will surface soon.
Marion Laboratories led the NYSE active list and jumped 8 1/4 to 33 1/2 on turnover of more than 5.8 million shares. Dow Chemical plans to acquire a chunk of Marion stock for $38 a share, increasing its stake in the company to 67%.
Dow Chemical shares dropped 1 1/2 to 88 3/8.
B. F. Goodrich, subject of speculation about a possible takeover bid, climbed 3 1/4 to 61 5/8.
International Business Machines was a standout among the blue chips, adding 1 1/4 to 116. But General Motors dropped 1/2 to 43; McDonald’s lost 1/2 to 29 5/8, and General Electric was unchanged at 54 5/8, registering little response to the company’s announcement of higher second-quarter earnings.
Charles Schwab Corp., which posted increased profits for the second quarter, gained 3/8 to 13, trading at new highs since the 1987 crash.
On the Tokyo Stock Exchange, share prices slumped in the year’s lightest trading ahead of elections set for the start of next week. The 225-share Nikkei index eased 118.55 points to close at 33,456.22 after slipping 56.39 points Friday.
Stock prices ended slightly higher on the London Stock Exchange, despite a round of profit taking in the afternoon. The Financial Times 100-share index ended up 1.2 points at 2,274.9.
Credit
Interest rates jumped as speculators lost confidence that the Federal Reserve would loosen credit in coming days.
The weakness started in short-term securities, which are most sensitive to Federal Reserve policies, and then spread to the bond market.
The Treasury’s benchmark 30-year issue sagged 1/2 point, or $5 for each $1,000 face amount. Its yield, which moves in the opposite direction from its price, rose to 8.12% from 8.08% late Friday.
The Federal Reserve drained reserves from the banking system on Friday and again Monday, an indication to traders that it was not about to push rates lower to stimulate the economy.
The central bank still may liberalize credit, but is not likely to do so before Thursday’s congressional testimony by Fed Chairman Alan Greenspan, said Steven R. Ricchiuto, an analyst at Barclays de Zoete Wedd Government Securities Inc. in New York.
The federal funds rate, the interest on overnight loans between banks, traded at 9.25%, up from 9.188% late Friday.
Commodities
Grain and soybean futures prices plummeted on the Chicago Board of Trade as a forecast for cooler, wetter weather over the next 10 days eased traders’ fears of supply tightness.
On other markets, coffee was sharply lower on news that Colombia is ending nearly all taxes on its exports to become more competitive in the newly deregulated marketplace; heating oil led a modest rally in the petroleum futures complex, and cattle futures climbed in anticipation of a government report that is expected to show fewer animals on the feedlots.
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