Heavy Program Trading Cited : Dow Tumbles 16.73; Airline Issues Climb
The stock market fell Tuesday amid profit taking and heavy program trading, but airline stocks soared on continued takeover speculation.
The Dow Jones index of 30 industrials fell 16.73 to 2,726.63.
Declining issues outnumbered advancing ones by a margin of about 4 to 3 in nationwide trading of New York Stock Exchange-listed stocks, with 869 down, 640 up and 486 unchanged.
Volume on the floor of the Big Board came to 175.21 million shares, up from 131.18 million in the previous session.
Prices drifted in a narrow range until the early afternoon, when program traders moved into the market and began selling. The Dow Jones industrial average skidded about 38 points before stabilizing late in the session.
“There was no real driving thrust other than the programs,” said market analyst Dennis Jarrett of Kidder, Peabody & Co.
“It did kick the stuffing out of the turkey,” he said of the programmed selloff.
The market shrugged off the Commerce Department’s report that the gross national product, the broadest measure of the economy’s performance, grew by 2.7% from April through July, a significant change from the 1.7% growth rate originally reported last month. The news eased fears that the economy was slipping into a recession.
Airline stocks were the stars of the session. AMR, the parent of American Airlines, was rumored to be a takeover target and shot up 10 1/4 to 91 1/2 as investors scooped up the firm’s stock before a possible bid could emerge. Delta Air Lines was also up, rising 2 1/2 to 83.
However the parent of United Airlines, UAL, which is fighting an unwanted bid from investor Marvin Davis, tumbled 4 1/4 to 277 1/4.
Drug stocks were active after the Food and Drug Administration said Monday that it would withdraw approval for a generic version of the blood-pressure medicine Dyazide manufactured by Bolar Pharmaceutical Co.
Bolar skidded 6 3/4 to 19 1/2 in American Stock Exchange trading, but other drug companies, including those selling competing brands of Dyazide, were up. SmithKline Beecham rose 1 to 42 3/4 on the NYSE.
The most actively traded issue on the NYSE was Texas Utilities, off 1/8 at 31 3/4.
Stock prices rebounded on the Tokyo Stock Exchange as a flurry of arbitrage buying ended a five-day losing streak. The Nikkei average of 225 selected issues, which fell 132.52 points Monday, gained 80.24 points to end at 34,687.65.
On the London Stock Exchange, share prices fell in thin trading. The Financial Times 100-share index ended 16.6 points lower at 2,380.8.
Credit
Bond prices rose in light trading after the government issued a slightly lower estimate of inflation for the April-June period.
The Treasury’s benchmark 30-year bond was up 1/4 point, or $2.50 per $1,000 face amount, while its yield, which falls when prices rise, slipped to 8.21% from 8.23% late Monday.
Bond prices briefly fell following the release of the GNP report because inflation-wary bond investors feared stronger growth would mean rapidly rising prices. But bond prices rallied when investors noted that the report was accompanied by figures indicating less inflation than previously estimated, said William Sullivan, director of money market research at Dean Witter Reynolds Inc.
An inflation gauge tied to the gross national product rose at an annual rate of 5.1% from April through June, down slightly from an original estimate of 5.2% made a month ago.
“Everybody kind of stopped and said, ‘Wait, guys, inflation isn’t as much of a problem as we’ve been thinking,’ ” said Marilyn Cohen, an investment broker at Capital Insight Inc. in Beverly Hills.
The federal funds rate, the interest on overnight loans between banks, was quoted at 8.875%, unchanged from late Monday.
Currency
The dollar fell sharply in active trading despite the favorable government reports on the economy.
Gold prices rose as a result.
On the Commodity Exchange in New York, gold bullion for current delivery closed at $363.60 an ounce, up $3.60 from late Monday. Republic National Bank of New York quoted a late bid for gold of $362 an ounce, up $3.
Currency dealers attributed the dollar’s selloff in the United States and abroad largely to sentiment that the U.S. currency had been overbought. Many traders stocked up on dollars Monday in anticipation of a favorable revision to the second-quarter gross national product report.
“You buy on rumor and sell on fact,” said Robert Ryan, a senior currency trader for Irving Trust Co. in New York. “What happened was the market just squared up and dumped.”
In Tokyo, where trading ends before Europe’s business day begins, the dollar fell 0.13 Japanese yen to a closing 144.15 yen. It was quoted lower in London at 143.90 yen, and in New York at 143.01 yen, down from 144.52 yen late Monday.
The dollar declined against the British pound. It cost $1.5845 to buy one pound in London, up from $1.5635 late Monday in Europe. Sterling fetched $1.5870 in New York, more than the $1.5636 late Monday.
The financial markets were closed Monday in London for a bank holiday.
Commodities
Copper futures prices collapsed, possibly spelling the end of a dramatic monthlong rally amid signs that copper miners’ strikes in Canada and Peru may be nearing settlement.
On other markets, frozen pork-belly futures soared the permitted daily limit on unconfirmed rumors that the Bush Administration was looking to ship surplus U.S. pork bellies to Poland; coffee futures rallied for a second day; grains and soybeans were mixed, and oil futures were mixed.
