FINANCIAL MARKETS : Takeover Speculation Fuels Dow’s 29.97 Rise
A late buying wave buoyed blue chip stocks, carrying the Dow Jones industrial index back above the 2,600 mark as the market moved broadly higher Wednesday.
The Dow Jones index of 30 industrials surged ahead by 29.97 to a new post-crash high of 2,613.05, benefiting from futures-related buying programs.
Advancing issues outpaced declines by about 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volume expanded to 188.27 million shares from 179.27 million in the previous session.
The market rode a seesaw during much of the session with the Dow industrials reversing course several times while, in the broader market, losing and gaining issues swapped the lead a few times.
But an afternoon outburst of enthusiasm for potential takeover targets, plus program trading, set the market on an upward course and more than compensated for continuing weakness in technology stocks.
One of the biggest beneficiaries of the takeover speculation was Disney, which leaped 5 3/8 to 109 3/4. Following Paramount’s unsuccessful bid for Time, there was talk that the communications company might turn its attention to Disney.
Other media and entertainment companies also were bid higher on the theory that they might attract Paramount’s interest. Tribune spurted 2 1/2 to 60 1/4, McGraw-Hill gained 1 7/8 to 75 1/4 and MCA went up 3 3/8 to 67.
Airline stocks took off on takeover speculation also. UAL, parent of United Airlines, rose 1 to 184 1/2, Delta jumped 1 5/8 to 72 1/4 and AMR rose 1 7/8 to 68 5/8.
Investors also were encouraged to buy consumer companies by a good earnings report from Pepsico, which rose 1 1/2 to 59. Other big winners among consumer stocks included Philip Morris, up 6 3/8 to 156 7/8; Ralston Purina, up 4 to 99 1/2; American Brands, up 3 to 77 1/8, and Gerber, up 4 3/4 to 89 5/8.
Procter & Gamble added 1 3/4 to 119 1/8 and helped push aloft the Dow Jones industrial index.
Elsewhere among the blue chips, International Business Machines lagged, posting a loss of 1/4 to 112 1/2 amid disappointment that the computer giant was forced to delay a major new product announcement due to last-minute technical problems.
IBM also had suffered during a general selloff in technology stocks that began Tuesday on news of a bearish forecast for the personal computer industry.
Thomas Czech, chairman of the investment committee at Blunt Ellis & Loewi, said stocks might have gotten a lift from a decline Thursday in the dollar’s value against other major currencies.
“Maybe we lifted some recession fears today with the dollar coming off as it did,” Czech said. “The dollar is indicating maybe we’ll get export business moving in the right direction again.”
Traders also seemed more upbeat about the economy in anticipation of today’s report on the second-quarter performance of the gross national product which is expected to show slow but steady growth.
Prices on the Tokyo Stock Exchange closed mixed in a seesaw of buying and profit taking. Trading was active. The 225-share Nikkei average, which soared 445.57 points Tuesday, eased 23.07 points to close at 34,515.83.
London stocks declined despite economic news that was better than expected. The Financial Times 100-share index closed 4.9 points lower at 2,264.5.
Credit
Bond prices finished little changed in quiet dealings, as traders looked toward today’s release of the first government estimate of economic growth in the second quarter.
The Treasury’s benchmark 30-year bond edged up 1/16 point, or 63 cents for every $1,000 in face value. Its yield, which moves in the opposite direction from price, fell to 8.10% from 8.11% late Tuesday.
The federal funds rate sank to 8.5%, down from 9.063% late Tuesday. The federal funds rate is the interest banks charge each other for short-term loans.
Commodities
Crude oil futures prices slipped to a 5 1/2-month low on the New York Mercantile Exchange, the fourth straight day of declining prices in a market weakened by slack demand for gasoline and a dearth of bullish factors.
On other markets, precious metals advanced, grains and soybeans were mixed and livestock and meat futures were mixed.
West Texas Intermediate crude oil settled 24 cents lower to 3 cents higher, with the contract for delivery in September at $18.30 a barrel, the lowest near-month settlement since March 7. Heating oil futures finished 0.07 to 0.17 cent higher, with August at 49.49 cents a gallon; unleaded gasoline was 0.43 to 0.84 cent lower, with August at 51.34 cents a gallon.
Tuesday’s weekly American Petroleum Institute report, which showed a 1.4-million-barrel drawdown in U.S. supplies of crude, was initially perceived as slightly supportive.
But analysts said closer examination of the report showed an increase of more than 3 million barrels in the Gulf Coast region, an indication that demand for gasoline is not keeping pace with crude oil production.
Crude oil for September delivery traded as low as $18.27 on Tuesday. Analysts said a drop below $18.25 would likely spark a new round of heavy selling.
Gold and silver futures advanced slightly on New York’s Commodity Exchange in reaction to a weaker dollar. Gold settled 90 cents to $1.20 higher, with August at $375 an ounce; silver was 1.5 to 1.6 cents higher, with September at $5.275 an ounce.
Wheat futures prices rose while corn and soybean futures finished narrowly mixed in quiet trading on the Chicago Board of Trade.
Analysts attributed much of the buying to perceptions that prices were exaggeratedly low after recent declines.
Selling in the corn and soybean pits was based largely on ideas that recent rains in the Midwest had improved crop conditions.
Currency
The dollar sank in response to more signs that the Federal Reserve was loosening credit and speculation of continued sluggish economic growth.
The dollar lost about 1 1/2 Japanese yen and 1 1/2 West German pfennigs, while the cost of a British pound in dollars rose 2 cents.
The Federal Reserve failed for a second day to drain reserves from the banking system, an indication that it was seeking to lower interest rates and stimulate the economy.
Dealers said the sharp drop in the fed funds rate was mainly the result of window-dressing by major banks at the end of the two-week settlement period, when they report their balance sheets to the Fed.
There was also speculation that today’s report on second-quarter gross national product, and subsequent reports, would confirm evidence of slow growth, said John Lynam, a vice president in the New York office of Security Pacific National Bank.
Britain’s pound sterling was boosted by a report that the nation’s trade gap grew less than expected in June.
The pound climbed in London to $1.6455, compared to $1.6255 late Tuesday. In New York, the pound rose further to $1.6585 from $1.6385 on Tuesday.
In Tokyo, the dollar fell to 141.43 Japanese yen from 142.35 yen on Tuesday. Later in Europe, the dollar closed at 140.50 yen. In New York, the dollar fell to 140.08 yen from 141.55 on Tuesday.
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