FINANCIAL MARKETS : Stock Rally Takes Breather; Dow Off 2.28
Stock prices edged lower Friday, weighed down by soft bond prices and a late bout of profit taking one day after the market rocketed in a broad-based rally to an all-time closing high.
The Dow Jones index of 30 industrials, which had climbed 56.53 points Thursday, slipped back 2.28 to 2,732.36. That left the average with a net gain of 44.39 points for the week.
Declining issues outnumbered advances by about 9 to 8 in nationwide trading of New York Stock Exchange-listed stocks, with 716 up, 798 down and 485 unchanged.
Volume on the floor of the Big Board came to 165.93 million shares, down from 225.52 million in the previous session.
The market appeared to pause as some traders cashed in the dramatic gains of stock prices lately.
But prices generally held steady on the strength of the enthusiasm generated by Thursday’s record high and the widespread public attention it received.
Analysts say the market has been able to recoup the last of the losses it suffered in the crash of 1987 with help from increasing confidence that the Federal Reserve can restrain inflation without causing a recession.
They also note that corporate earnings have risen sharply in the past two years, making the perceived risk in stocks less than it was when the market peaked out two years ago Friday.
Losers among the blue chips included Eastman Kodak, down 1 1/2 at 49 1/8 ; Coca-Cola, down 1 at 67 1/8; American Telephone & Telegraph, down 1/4 at 39 7/8, and DuPont, down 1 3/8 at 118 3/4.
But General Motors rose 1 1/8 to 47 7/8, reaching a new 52-week high; Union Carbide gained 3/8 to 29 3/8, and General Electric was up 1/2 at 58 5/8, all in active trading.
Some stocks that had run up Thursday on takeover rumors and speculation fell back. K mart dropped 1/8 to 43 5/8, and Maytag lost 1 1/4 to 25 1/4.
Campbell Soup fell 3 1/4 to 50 1/4. Analysts said a restructuring program announced by the company dampened speculation that it might become a takeover target.
BankAmerica, subject of favorable comments by a couple of large brokerage houses in recent days, climbed 7/8 to 32 1/2. Paine Webber Inc. described the company as a “dramatic turnaround” whose stock it called “still cheap.”
Prices on the Tokyo Stock Exchange weakened for the third straight session in moderate trading. The key Nikkei 225-share index, which tumbled 102.73 points Thursday, fell 46.62 points to close out the week at 34,739.93.
In London, stocks ended higher but sharply below their session peaks. The Financial Times 100-share average ended up 10.7 points at 2,393.1, down from a session high of 2,404.5.
Credit
Bond prices fell after traders dumped Treasury securities in a late-afternoon selloff, market watchers said.
The Treasury’s benchmark 30-year bond fell 11/32 of a point, or $3.44 for every $1,000 in face amount. Its yield, which rises when prices fall, rose to 8.18% from 8.15% late Thursday.
There was little economic news to move the market, analysts said. Trading was slow until mid-afternoon, said Jay Goldinger, an investment broker with Capital Insight Inc. in Beverly Hills. Then, the sale of some mortgage issues prompted dealers to sell Treasury issues, he said.
“Dealers bought the mortgage issues and tried to hedge them by selling Treasuries,” he said.
Also, he said, “The market has tended to sell off the last few Fridays.”
In the secondary market for Treasury bonds, prices of short-term government issues fell 3/32 to 5/32 point, intermediate maturities fell 7/32 point and long-term issues were down 1/4 point to 11/32 point, according to Telerate Inc., a financial information service.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.938%, down from 9.0625% late Thursday.
Currency
The dollar finished higher in domestic dealings after declining overseas.
Gold prices moved sharply lower. On the Commodity Exchange in New York, gold bullion for current delivery fell $3.80 to close at $360.70 an ounce. Republic National Bank of New York quoted a late bid for gold of $360.25 an ounce, down from $362.40 late Thursday.
Trading was quiet, but U.S. currency dealers said the dollar moved within a wide range before closing on the highs of the day.
Profit taking in London, where a three-day holiday weekend was about to begin, helped push the dollar down overseas.
But traders in the United States interpreted the lower dollar as a bargain and began buying the currency at midday, driving the price up.
“There was a failure of the dollar to follow through on the down side,” said Bob Morrissey, a senior trader at the Bank of Boston’s New York office.
Others agreed that sentiment toward the U.S. currency remains bullish.
In Tokyo, the dollar closed lower at 143.53 Japanese yen, down from 143.60 late Thursday. Later in London, the dollar traded lower at 143.25 yen. In New York, however, the dollar closed at 143.90 yen, up from 143.21 yen on Thursday.
In London, one British pound cost $1.5725 late Friday, more expensive for buyers than Thursday’s late $1.5698. But in New York, one pound cost $1.5660, cheaper than $1.5720 on Thursday.
Commodities
Cocoa futures prices plunged on New York’s Coffee, Sugar & Cocoa Exchange as traders looked ahead to next month’s meeting of the International Cocoa Organization with an expectation of failure.
On other markets, copper prices reached new contract highs, grain and soybean futures plunged, precious metals declined, oil futures were down and livestock and meat futures were mixed.
Cocoa settled $37 to $47 lower with the contract for delivery in September at $1,066 a metric ton.
The selloff in cocoa futures followed ICO’s revision of its forecast for the 1988-89 world cocoa surplus, raising the figure by 40,000 metric tons to 263,000 metric tons from its May forecast.
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