FINANCIAL MARKETS : Dow Index Falls 19.67 as Banks Snub Rate Cut

The stock market fell sharply Thursday on profit taking and disappointment that major banks did not move to lower their prime lending rates.

The Dow Jones industrial average fell 19.67 points to close at 2,603.69, erasing more than two-thirds of the market’s 26.23-point rise on Wednesday in a broad rally.

In the broader market, declining issues led advancers, with 809 issues down and 648 up in price. Big Board volume was a moderate 143.4 million shares, down sharply from 170.2 million shares Wednesday.

On Wednesday, the market surged after a trend-setting Missouri bank lowered a key lending rate, following signs that the Federal Reserve is sending interest rates lower.

Lower interest rates stimulate the economy and make stocks relatively more attractive compared to fixed-income investments such as bonds.

Economists said they expect other banks to follow Southwest Bank of St. Louis, which cut its prime lending rate to 10% from 10.5% on Wednesday. But no major banks announced cuts Thursday in their prime rates, which are tied to many consumer loans.

And the Federal Reserve gave no further signs Thursday of easing its monetary policy.

“The reason (for the decline in stocks) is that we are supposed to be waiting for major money centers to lower their prime rate, but this afternoon’s drop is more severe than that,” said Trude Latimer at Josepthal & Co.

Analysts also said the market fell on concerns about the economy, underscored by a higher-than-expected rise in the producer price index, which measures inflation at the wholesale level.

The Labor Department said Thursday that wholesale prices rose 0.4% in October, while analysts had expected a 0.2% rise.

After news of the rise in the producer price index, the market opened lower and continued a narrow decline through the day.

Profit taking later depressed prices further, with nearly half of the day’s losses coming in the final hour of trading.

Corporate earnings influenced some stocks. Disney rose 1 5/8 to 124 1/2 in moderate trading after reporting earnings that analysts said were on the high end of their estimates.

Consolidated Freightways slid 2 3/4 to 27 5/8 after it said it may report a loss for the fourth quarter while Weyerhaeuser slipped 5/8 to 25 5/8 after the company told analysts Wednesday that its operating earnings for the fourth quarter would be lower than third-quarter profit.

Among technology stocks, Wang dropped 1/8 to 5 1/4 after it said it would eliminate about 2,000 jobs by Jan. 1, 1990. IBM rose 5/8 to 97 3/8, while Hewlett-Packard added 1/2 to 42 7/8, and Compaq Computer slipped 1 3/8 to 91 3/8.

Philip Morris closed unchanged at 41 5/8 in active trading. The company said it was selling its 29% interest in Rothmans International to a Swiss company for $860 million.

Investors took aim at steel issues in late trading Thursday on the Tokyo Stock Exchange, propelling the key market barometer to its second straight rise in moderate trading. The Nikkei 225-share index closed up 61.83 points to 35,657.42.

Share prices finished lower on London’s stock exchange as prices retreated in the afternoon. The Financial Times 100-share index fell 2.1 points to 2,201.7.

Credit

Bond prices finished slightly lower in moderate trading.

The Treasury’s closely watched 30-year bond slipped 1/8 point, or $1.25 for every $1,000 in face value. Its yield, which rises when prices fall, advanced to 7.89% from 7.87% late Wednesday.

Analysts said bond prices were tipped lower by traders’ disappointment in Thursday’s auction by the Treasury of $10 billion in three-year notes and by the Federal Reserve’s action in draining some reserves from the market.

The average yield of the notes at auction was 7.77%, down from 7.93% at the last comparable auction on Aug. 8.

Although the yield was the lowest since early 1988, “It was a mild disappointment,” said William Sullivan, director of money-market research at Dean Witter Reynolds Inc.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.375%, unchanged from late Wednesday.

Currency

The dollar rose against most major currencies except the Japanese yen and Canadian dollar.

Gold prices fell. Republic National Bank of New York quoted a bid for gold at 4 p.m. EST of $386.30 an ounce, down from $387.50 late Wednesday.

Dealers said the dollar had little reaction to a larger-than-expected 0.4% rise in U.S. wholesale prices in October.

“You saw most of the market react rather subdued to the PPI report,” said David Ethridge, vice president of foreign exchange at Merrill Lynch Capital Markets. “It wasn’t a shock.”

Currency traders said the dollar remained strong despite the market’s perception that the Federal Reserve is relaxing its credit policy, which likely would encourage lower interest rates. Falling interest rates usually depress the dollar’s value.

The key factor was selling between other currencies that pushed down the dollar compared to the Japanese yen, said Keith Raphael, an assistant vice president at Bank Brussels Lambert in New York.

He said the yen rose against the West German mark and also gained ground against the dollar in the morning. The selloff ran out of steam when the dollar hit 142.25 yen and traders bought dollars in an afternoon rally, traders said.

In Tokyo, the dollar closed at 142.70 Japanese yen, down 0.27 yen from Wednesday’s close. Later in London, the dollar rose to 142.85 yen. In New York, the dollar closed at 143.13, down from 143.18 late Wednesday.

Raphael said the dollar rose against the British pound because the Bank of England expressed concern that pressure to increase wages could lead to a recession.

In London, the British pound edged up to $1.5863 from $1.5860 late Wednesday. Later in New York, the pound fetched $1.5823, less than $1.5885 late Wednesday.

Commodities

Copper prices continued their surge on New York’s Commodity Exchange amid investors’ concerns over labor conditions in Chile.

On other markets, grain was mostly lower and soybeans higher; energy and sugar futures were higher; gold was off while silver gained, and livestock and pork futures were mixed.

Copper settled 0.70 cent to 1.35 cents higher, with the contract for delivery in November at $1.1640 a pound.

Miners at Chile’s four largest mines have voted to strike if the government adopts a law that would reorganize state-owned Chile Copper Corp. The proposal would give members of the military government power over mine operations after the government leaves office and would reduce the power of unions.

Helping to boost prices was the perception the metal had been oversold in recent weeks because of settlement of labor disputes in Canada and Mexico, said analyst Don Tierney of Stanley Bell & Co. in New York.

Expectations that Monday’s report on stocks in London Metal Exchange-approved warehouses will show a decline also helped prices, as did prospects that interest rates are going down, which would increase demand, Tierney said.

Grain futures were mostly lower and soybeans were higher in quiet trading on the Chicago Board of Trade.

Trading in corn and soybeans was subdued as investors awaited the release of the U.S. Department of Agriculture’s latest crop report.

The report, released after the close of trading, estimated the 1989 corn harvest at 7.59 billion bushels, up 54% from last year’s drought-shriveled crop. The estimate was up 2% from prospects a month ago when the department estimated this year’s production at 7.45 billion bushels.

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