Stocks Fall in Heavy Trading; Dow Off 13.66
Concern about interest rates shook the stock market Thursday and sent prices down in the busiest day this week.
The drop came in response to a sharp decline in the bond market after release of the June U.S. trade deficit report. The numbers showed a surprising narrowing of the deficit that suggested underlying strength in the economy.
The Dow Jones index of 30 industrials fell 13.66 to finish at 2,679.63, after trading down about 25 points during the session. Last Thursday, the Dow Jones index closed at 2,712.63, near the all-time high of 2,722.42 reached in August, 1987.
The Dow Jones transportation average gained 26.67 to set another record at 1,428.34, largely because of takeover speculation in airline stocks.
Declining issues outnumbered gainers by about 8 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 887 issues down, 561 up and 540 unchanged.
Big Board volume totaled 157.56 million shares, up from 150.06 million Wednesday.
The Commerce Department reported that the June U.S. trade deficit narrowed to $8.17 billion from a revised $10.08 billion in May. The improvement resulted mainly because of a 1.5% increase in exports to a record $30.91 billion while imports fell 3.6% to $39.08 billion.
The stock and bond markets initially rallied after the report, which eased recession worries. But closer inspection aroused bondholders’ concern that the economy is too strong and that the Federal Reserve might not ease credit conditions.
What should have been interpreted as good news for the overall economy was bad news for the market, said Larry Wachtel, analyst with Prudential-Bache Securities Inc.
“The market is concerned that if the economy is too bubbly the Fed will not accommodate and lower interest rates,” Wachtel said.
Some Wall Street analysts said, however, that the market was overreacting.
Among most actively traded issues on the NYSE, UAL Corp., parent of United Airlines, rose 14 5/8 to 266 3/8 on news that billionaire suitor Marvin Davis raised his bid to $275 a share, or $6.19 billion.
Delta Air Lines rose 1 to 75 1/4, Continental Bank gained 1/4 to 25 and AT&T; rose 1/4 to 39 3/8.
Hewlett-Packard, meanwhile, fell 1 1/2 to 51, Navistar lost 1/4 to 4 7/8 and Bristol Meyers dropped 1/8 to 47 3/4.
Tokyo stock prices closed barely firmer but managed to post a record closing high despite light summer volume. The Nikkei 225-share index rose only 5.96 to close at a record 35,090.11.
Share prices briefly reached 1989 highs during the trading day on London’s Stock Exchange, partly in response to better-than-expected U.S. trade figures. The Financial Times 100-share index ended up 14.2 at 2,360.0.
Credit
Bond prices fell as a result of fresh evidence of continuing economic strength.
The Treasury’s closely watched 30-year bond dropped 9/16 point, or $5.60, for every $1,000 in face value, while its yield rose to 8.16% from 8.11% late Wednesday.
Analysts said bond prices were hurt by the trade report and a decline in initial claims for state unemployment insurance.
Robert Chandross, chief economist at Lloyds Bank in New York, said the decline in unemployment applications “makes people in the market nervous about strengthening of the economy.”
He said the declining trade deficit, which was helped by a 1.5% increase in U.S. exports to a record level of $30.91 billion, makes it less likely that the Fed will relax its credit policy, driving interest rates lower and bond prices higher.
Bond prices finished above the day’s lows, however, as some traders bought bonds late in the day in an effort to square their holdings before today’s scheduled report on consumer prices in July.
The federal funds rate, the interest on overnight loans between banks, was quoted at 8.875%, down from 8.938% late Wednesday.
Currency
The dollar rose sharply worldwide, bolstered by the better-than-expected trade report, but its gains were capped by profit taking and uncertainty over whether the upward momentum can continue.
The rise brought the dollar back almost to the highs reached in June, the period of its most recent rally.
Gold prices were mixed. On the Commodity Exchange in New York, gold bullion for current delivery gained 10 cents to close at $368.30 an ounce. Republic National Bank of New York said quoted a late bid of $366.20, down from $366.50 Wednesday.
The U.S. currency began gaining ground after the release of the trade deficit report.
Profit taking at home and abroad as well as rumors of intervention took the dollar down from its peak levels in hectic trading.
“The variables here are the central banks,” said Ian Spence, chief dealer at Manufacturers Hanover Trust Co. “There’s a lot of uncertainty over whether the dollar will go much higher.”
Traders also were looking to today’s release of the consumer price index for July for further evidence that economic growth is continuing and that monetary policy need not be altered.
Earlier in Tokyo, the dollar firmed to 142.32 Japanese yen from 142.20 late Wednesday. Later in London, the dollar traded sharply higher at 143.95 yen. In New York, the dollar closed at 143.53 yen, up from 142.19 yen on Wednesday.
In London, one British pound cost $1.5590 late Thursday, cheaper than Wednesday’s $1.5735. In New York, one pound cost $1.5605, less expensive than $1.5805 Thursday.
Commodities
Prices of copper futures rocketed higher on New York’s Commodity Exchange, extending to seven days a rally fueled by miners strikes, tightening supplies, bullish chart signals and signs of renewed economic strength.
On other markets, soybeans for August delivery tumbled, energy futures were lower, most livestock and meat futures advanced before a government cattle report and precious metals were narrowly mixed.
Copper settled 2.9 to 4.5 cents higher on heavy volume, with the contract for delivery in August at $1.2675, the highest settlement of a spot contract since May 5. The more active September contract settled at $1.2625, which represents a 15% gain since Aug. 8.
Copper prices reached a record high of $1.6475 a pound last Dec. 8.
Prices initially rose Thursday after the Commodity Exchange’s report that stocks of copper stored for delivery against futures contracts had dropped by 1,140 tons Wednesday to 16,708 tons.
Traders follow the daily Comex stocks reports as an indicator of overall supplies. Wednesday’s sharp drawdown reinforced fears that miners strikes in Peru and Canada, as well as production problems in other copper-rich nations, are cutting into supplies as the seasonal peak demand period--which begins in the fall and ends in the early spring--approaches.
Analysts said the September contract pierced considerable technical resistance at $1.23 a pound, bringing in further buying that brought it to within about 5 cents of its lifetime high of $1.3150, reached on March 8.
Analyst James Steel of Refco Inc. said the rally was almost entirely technically inspired, but he also cited the Commerce Department’s report of a strong improvement in the trade deficit. The report signals economic strength, a key component of copper demand.
Soybeans for August delivery fell 15.5 cents a bushel on the Chicago Board of Trade in a selloff sparked by ideas that the Italian grain giant Ferruzzi Finanziaria S.p.A. was liquidating some large holdings. The contract settled at $6.08 a bushel.
Heavy selling of soybean contracts Thursday by trading companies with close ties to Ferruzzi prompted a flurry of selling by others seeking to profit from the drop in prices that a large-scale selloff by Ferruzzi could cause.
Wheat settled 1.5 to 2.75 cents lower, with September at $3.9725 a bushel; corn was 2.25 cents lower to 0.75 cent higher, with September at $2.3575 a bushel; oats were 0.50 cent to 1.5 cents lower, with September at $1.37 a bushel, and soybeans were 15.5 cents lower to 6 cents higher, with the September contract at $5.84 a bushel.
