Dow Up 7.25, but Most Issues Close Lower
The stock market closed mixed Tuesday, as bargain-hunting aided blue chip stocks but economic uncertainty pushed most shares lower.
The Dow Jones index of 30 industrials rose 7.25 points to 2,639.29.
The broader market was lower, however. Declining issues outnumbered advancing ones by about 3 to 2 in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volume totaled 147.90 million shares, up from 128.17 million in Monday’s session.
“People are pulling their horns in a little bit,” said Ralph Acampora, an analyst at Kidder, Peabody & Co. “There’s a little apprehension, a little uncertainty.”
Analysts said an early advance ran out of steam when the market took a closer look at a government report on inflation that was slightly worse than most experts had been expecting.
The Labor Department reported that consumer prices shot up 0.5% last month as higher gasoline and food costs gave the country its biggest inflation surge since May.
“That obviously didn’t help” stock prices, said Bill Raftery, an analyst at Smith Barney, Harris Upham & Co.
Traders said the market was roused late in the day by a report that Texas investor Harold C. Simmons intends to raise his stake in Lockheed to as much as 15% from the present 10.6%.
The news bolstered sentiment in a market that fell steeply the day before in a decline led by defense stocks. The interest of Simmons, a leading takeover artist, in the defense contractor was viewed as significant. Lockheed rose 1 1/8 to 37.
The market appeared to be shaky after Monday’s 20.62-point drop in the Dow average, caused by a selling wave that hit defense contractors especially hard.
Defense Secretary Richard Cheney called on Sunday for a $180-billion reduction in military spending over the next six years.
On Tuesday, White House spokesman Marlin Fitzwater confirmed Cheney’s statements but said President Bush hasn’t decided yet what defense expenditures he will propose to Congress for the next fiscal year.
Among other actively traded issues on the NYSE, Holiday fell 1 1/4 point to 70, General Motors “E” stock was down 5/8 at 54 3/4, Philip Morris declined 1/2 to 40 3/4, and Bristol Myers-Squibb was unchanged at 54 3/4.
Texas Instruments jumped 2 1/4 to 31 3/4, McDonalds was up 1 at 32 3/8 and IBM rose 3/4 to 99 1/2.
Stock prices rebounded on widespread buying on the Tokyo Stock Exchange, lifting the key Nikkei average to a new high. The Nikkei average of 225 shares soared 166.29 points to close at a new benchmark of 36,059.87.
London share prices ended slightly higher as stocks rebounded despite bearish signals from the futures market. The Financial Times 100-share index ended 2 points higher at 2,185.1.
Credit
Bond prices edged higher despite the sharp rise in consumer prices.
The Treasury’s benchmark 30-year bond rose 5/32 point, or about $1.50 per $1,000 face amount. Its yield fell to 7.90% from 7.91% late Monday.
Bond prices fell immediately after the government reported that consumer prices shot up in October.
Rising inflation erodes the value of bonds and other fixed-income investments. But the increase had been largely expected, and traders noted that part of it stemmed from transient factors such as rises in the prices of new cars at the start of a new model year.
Bond prices soon steadied and improved through the rest of the day.
The federal funds rate, the interest on overnight loans between banks, was quoted at 8.50%, down from 8.438% late Monday.
Currency
Gold prices soared past $400 an ounce Tuesday, crossing that psychologically important barrier for the first time since late January.
Meanwhile, the dollar fell sharply amid speculation that interest rates might rise in West Germany.
Gold prices have been inching upward in recent weeks, but when they crossed the $400-an-ounce level Tuesday, buyers enthusiastically began to snap up the metal.
On the Commodity Exchange in New York, an ounce of gold surged $5.50 to $403.70, while Republic National Bank quoted a late bid of $403.50 for an ounce, also up $5.50 from late Monday.
“Gold and silver all of a sudden are back in favor,” said Steven Pepper, a precious metals analyst with Republic.
Silver picked up 14.6 cents to close at $5.834 an ounce on the Commodity Exchange, although it fell earlier in London to a late bid price of $5.71 an ounce from late Monday’s $5.74.
In earlier overseas trading, dealers said gold benefited from the dollar’s fall and from the turmoil in Eastern Europe.
Gold jumped more than $6 in London to a late bid price of $402.75 an ounce, compared to $396.50 bid late Monday. In Zurich, the metal rose to a bid of $399 from late Monday’s $396.65.
The dollar slumped as speculation grew that West Germany’s central bank, the Bundesbank, would be forced to raise interest rates because the influx of East Germans into the country might boost economic growth.
When foreign interest rates rise and U.S. rates do not keep pace, the dollar becomes less attractive to overseas investors. Speculation that interest rates might go up abroad often sparks selling of the U.S. currency.
The dollar fell against the British pound. One pound cost $1.56975 in New York, compared to $1.5582 late Monday. In London earlier, the pound rose to $1.5645 from $1.5595 late Monday.
In Tokyo, the dollar fell 0.24 Japanese yen to a closing 144.43 yen. Later, in London, it fell further to 143.95 yen, and in New York, it declined to 143.555 yen, down from 144.355 late Monday.
