Dow Manages Only 5.51 Gain as Rally Fizzles

Stocks faltered Wednesday after a strong opening rally fizzled, but the market still finished with a small gain.

The Dow Jones index of 30 industrials rose 5.51 to close at 2,693.29 after bouncing over the 2,700 mark shortly after the opening bell.

Advancing issues outnumbered declines by about 5 to 4 in nationwide trading of New York Stock Exchange-listed stocks, with 819 issues up, 662 down and 512 unchanged.

Big Board volume totaled 150.06 million shares, up from 148.77 million Tuesday.

The market opened strong in what some Wall Street analysts predicted would be the launching pad for a new rally. But the market failed to sustain the momentum and began to drift.

“I’m perplexed about the action; the action is odd,” said John Burnett, senior vice president at Donaldson, Lufkin & Jenrette. “You know in the movies how they say, ‘It’s too quiet?’ I expected more activity.”

New government reports on July U.S. industrial production and capacity utilization and housing starts were as expected and had little effect on the market, analysts said.

Nevertheless, the reports helped ease concerns that the economy is starting to heat up again, said Hugh Johnson, senior vice president for First Albany Corp.

The Commerce Department reported that new housing starts rose 0.8% last month to a seasonally adjusted rate of 1.43 million units from 1.42 million units in June.

Industrial production rose a moderate 0.2% in July, but the operating rate for the nation’s factories remained flat, the Federal Reserve Board said, suggesting a further easing of inflation.

Technology stocks slumped after Intel Corp. announced that it expected a decline in third-quarter earnings because of a “change in the company’s product mix.” Intel dropped 1 3/8 to 28 7/8 on the over-the-counter market.

But analysts predicted that the market could improve later this week with the release of the June merchandise trade and July consumer price reports today and Friday.

“Technically, the stock market is in a positive mode. The upturn is still intact,” said A. C. Moore, director of research at Argus Research.

Among actively traded issues on the NYSE, General Motors rose 1/4 to 45 3/4, Ford Motor gained 7/8 to 51 7/8 and Tandem advanced 1 1/8 to 23 1/4.

IBM closed at 115 1/4, down 1; Johnson & Johnson lost 1/2 to 51, and Exxon fell 3/4 to 44 3/8.

In Tokyo, stocks surged to close above 35,000 on the key 225-share Nikkei index for the first time, although volume was light. The Nikkei finished 273.46, or 0.79%, higher at 35,084.15, just after hitting a record trading high of 35,086.10.

Share prices ended at the day’s highs on the London Stock Exchange, helped by a general shortage of stock and small gains on Wall Street. The Financial Times 100-index closed at 2,345.8, up 19.6.

Credit

Bond prices rose for the second straight day after a large selloff.

The Treasury’s closely watched 30-year bond rose 17/32 point, or $5.31 for every $1,000 in face value. Its yield declined to 8.11% from 8.15% late Tuesday.

Analysts said bonds initially showed little reaction to the housing starts and factory operating rates. “They basically show a moderating economy but one that’s not threatened by a recession,” said Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc.

The market initially was subdued by traders’ caution before more government reports today on merchandise trade figures for June and Friday on retail price inflation for July.

But prices jumped in the afternoon, a move analysts attributed to technical factors. The increase may also have been a continuation of buying at lower prices after the long bond declined more than $25 on Friday and Monday.

“It was interesting and possibly a good sign that (traders) were willing to take things up before the trade figures,” said Robert Brusca, chief economist for Nikko Securities International Inc.

The federal funds rate, the interest on overnight loans between banks, was quoted at 8.938%, down from 9.125% late Tuesday.

Currency

The dollar drifted mostly lower against major foreign currencies after a mixed performance overseas.

Gold prices also fell in domestic trading but made strong gains in Europe and Asia.

On the Commodity Exchange in New York, gold bullion for current delivery closed off $2.50 at $368.20 an ounce. Republic National Bank of New York quoted a late bid of $366.50, down from $368.50 Monday.

Currency traders said the dollar started out strong but slipped on rumors of dollar selling by the Federal Reserve and on internal market influences.

“A lot of people were squaring their positions ahead of today’s trade report,” said Gary Lutnick, a trader for Banco di Sicilia in New York.

In Tokyo, where trading ends before Europe’s business day begins, the dollar fell 0.40 yen to a closing 141.80 yen. It traded at 142.45 yen late in London and at 142.185 yen in New York, up from 142.15 yen Tuesday.

The dollar rose against the British pound in Europe and fell in New York. It cost $1.5725 to buy one pound in London, cheaper than $1.5735 late Tuesday. Sterling fetched $1.5805 in New York, up from $1.5768.

Commodities

Energy futures prices advanced modestly on the New York Mercantile Exchange after the release of American Petroleum Institute figures showing a drop in petroleum stocks.

On other markets, soybean futures dropped sharply and grain futures were mixed, precious metals prices retreated, copper continued its advance, and livestock and pork futures were mixed.

West Texas Intermediate crude oil settled 17 to 39 cents higher, with the contract for delivery in September at $18.97 a barrel; heating oil was 0.44 to 0.95 cent higher, with September at 51.15 cents a gallon, and unleaded gasoline was 0.84 cent to 0.90 cent higher, with September at 52.93 cents a gallon.

The institute’s weekly data indicated that gasoline stocks declined 3.5 million barrels in the latest week, while crude oil stocks were down 2.75 million barrels.

Traders looked upon the data as slightly bullish, prompting the run-up in prices.

Soybean futures were off sharply on the Chicago Board of Trade because of an uncertain weather outlook, analysts said.

Earlier this week, forecasts called for a relatively dry weekend, but updated forecasts call for moderate rain over wide areas of the Midwest, which triggered commercial selling, said Frank Kouba, an analyst with Shearson Lehman Hutton Inc. in Chicago.

Corn futures ended the day higher despite forecasts of weekend precipitation. Giving support to the market were reports that Mexico will bid this week for 400,000 metric tons of U.S. corn and South Korea will bid for 150,000 metric tons.

Wheat was 0.25 cent lower to 4.75 cents higher, with September at $3.9925 a bushel; corn was 0.50 cent lower to 1.50 cent higher, with September at $2.35 a bushel; oats were 0.75 cent to 2 cents lower, with September at $1.38 a bushel, and soybeans were 13.25 cents lower to 1 cent higher, with August at $6.235 a bushel.