STOCKS : Dow Tops 2,700 After Oil Issues Stage a Rally
Wall Street’s Dow industrials rose for the fifth consecutive session Tuesday, closing above 2,700 points after a surge in oil stocks and modest gains in U.S. bond prices reversed the stock market’s early drop.
The Dow Jones industrial index finished up 7.04 points at 2,702.01, bringing its gains since Nov. 20 to 69.97 points.
Tuesday’s modest advance was led by the oil stocks, which rallied after the Organization of Petroleum Exporting Countries agreed to limit its output for the first half of 1990. The gain in the stocks came despite a fall in oil prices.
Stocks benefited from lingering expectations that the Federal Reserve will nudge interest rates lower.
However, following the Fed’s somewhat contradictory actions last week, most analysts expect the central bank to ease very gradually.
“Those who were obsessed with the short-term maneuvers of the Fed got out of the market,” said Michael Metz of Oppenheimer & Co. “The Fed is going to take its time . . . (but) there is a feeling that there will be some action.”
Oil stocks topped the most-active list following OPEC’s agreement. Dow component Exxon Corp. rose 1 to 47 7/8, Texaco gained 7/8 to 54 3/4, Philips Petroleum rose 3/4 to 23 3/8 and Unocal Corp. added 3/8 to 28 1/4.
Chevron, another Dow industrial, was one of the few oil stocks to fall. It ended 1/2 lower at 67 3/4 after a Kidder, Peabody & Co. analyst recommended that investors sell their Chevron stocks and buy into Exxon.
The oil service company Schlumberger climbed 5/8 to 46 3/8, while Halliburton was unchanged at 40 1/4.
American Express gained 5/8 to 35 3/8 in active trading. The company raised its quarterly dividend Monday.
IBM declined 1/2 to 98 7/8, Texas Utilities lost 1/2 to 34 1/4, and McDonald’s slipped 1/8 to 32 7/8.
Avon Products dropped 1/8 to 36 5/8. Chartwell increased its stake to 8% from 6.9%, but traders said investors were uncertain about further developments at the company, a longtime takeover target.
Dayton-Hudson Corp. fell 1 5/8 to 64 1/8 after an analyst at Sanford C. Bernstein changed his recommendation to “hold” from “buy” on the stock, traders said. Another analyst said that while the department store’s November sales are expected to be on target, sales at its Mervyn’s unit were below expectations.
Airline stocks ended mixed after news of more price increases. Delta Air Lines said it would match domestic fare hikes aimed at business travelers initiated by UAL Corp.’s United Airlines last week. Delta was up 1/4 to 68 1/2, and Pan Am Corp., which raised fares aimed at leisure travelers, added 1/8 to 2 7/8.
UAL, the parent of United Airlines, sank 3 1/4 to 165 1/2. British Airways’ chairman told Reuters there was nothing on the horizon that would cause it to reassess its decision not to participate in any UAL buyout.
Advancing issues outnumbered decliners by about 4 to 3 in nationwide trading of New York Stock Exchange-listed stocks, with 848 issues up, 647 down and 502 unchanged.
Big Board volume totaled 153.77 million shares, up from 149.39 million in Monday’s session.
Late futures-related buying took Japan’s Nikkei index to its fifth straight record close after prices languished in a tight range earlier in the day. The 225-share Nikkei jumped 103.77 points to close at a record 36,985.30, after surging 397.06 Monday.
Prices also finished higher on London’s Stock Exchange, bolstered by futures-led buying and increased confidence in the outlook for British interest rates. The Financial Times 100-share index closed up 17.7 points at 2,242.0.
CREDIT
Bond Prices Mixed After Fed’s Actions Bond prices finished narrowly mixed as traders retreated to the sidelines a day after many evidently guessed wrong on whether the Federal Reserve was encouraging lower interest rates.
The Treasury’s benchmark 30-year bond rose 1/32 point, or about 30 cents for every $1,000 face amount. Its yield held at 7.90%, the same as late Monday.
Government bond prices fell on Monday after the Federal Reserve drained money from the banking system, driving the federal funds rate to 8.50% by the end of the day from 8.25% late Friday.
The move surprised many traders, who had interpreted central bank moves last Wednesday that added reserves as an indication that the Fed was relaxing its credit policy and encouraging lower interest rates.
The confusion “put a lot of people on the sidelines today,” said Steven A. Wood, economist for BankAmerica Capital Markets Group in San Francisco.
The federal funds rate is the interest that banks charge each other for short-term loans. The Fed can drive the borrowing charge higher or lower by arranging short-term securities sales or purchases that affect the amount of money available in the banking system.
The federal funds rate was quoted at 9% late Tuesday, up from 8.50% late Monday.
Economists said the Fed on Tuesday added reserves to the banking system because of seasonal needs for more money, but the move was seen as necessary and not a sign of a looser credit policy.
CURRENCY
Dollar Heads Lower Over Rate Worries The dollar was generally lower as interest rate concerns continued to dominate the foreign exchange markets.
The dollar has fallen in recent sessions amid expectations that the Fed would move interest rates lower. But Monday’s developments “caused a momentary hesitation in the market” and traders began buying dollars early in Tuesday’s session to shore up their positions, said Robert Ryan, senior foreign exchange trader with the Bank of New York.
But the dollar continued its slide in later trading because of continuing expectations that interest rates would rise overseas, particularly in West Germany, making foreign currencies more valuable, said Jack Barbanel, president of First Global Asset Management Inc.
The mark suffered from some profit taking Tuesday, but still closed higher. In New York, the dollar fell to 1.7770 marks from late Monday’s 1.7890 after slipping earlier in Frankfurt to 1.7880 marks from 1.7900 late Monday.
The dollar rose slightly to 143.20 Japanese yen in New York from late Monday’s 143.195. In Tokyo, the dollar rose to a closing 143.65 Japanese yen from 143.35 yen, and in London, the dollar traded at 143.69 yen.
The dollar also declined against the British pound. One pound cost $1.5670 in New York, compared to $1.5585 late Monday, and in earlier London trading, sterling rose to $1.5625 from $1.5605 late Monday.
COMMODITIES
Bargain Hunting Leaves Metals Mixed Precious metal futures prices were mixed in active trading Tuesday on New York’s Commodity Exchange as bargain hunting developed a day after profit taking sent prices sharply lower.
On other markets, energy futures were lower, grain and soybeans prices rose, and livestock and pork futures declined.
Gold ranged from 50 cents higher to 60 cents lower, with the contract for delivery in December down 60 cents at $413.50 a troy ounce; silver was 2 to 6 cents higher with December at $5.695 cents a troy ounce.
Gold prices continued Monday’s slide in early trading, but reversed direction as speculators began to bargain hunt. Prices also were helped as the dollar weakened during the day, nearing its 1989 low against the West German mark.
“Gold continues to be bought by speculators,” said analyst Peter Cardillo of Josephthal & Co. in New York. “Basically, there still is a sense of fear about the strength of the economy.”
Energy prices declined sharply on the New York Mercantile Exchange as traders reacted to news that OPEC ministers reached a new production agreement that would raise the group’s output ceiling to 22 million barrels a day and maintain a target price of $18 a barrel.
Analyst Robert Baker of Prudential-Bache Securities Inc. in New York said the agreement, reached in Vienna, “had a few more leaks in terms of quota discipline” than was desired by the market.
“The agreement was signed with the recognition that the United Arab Emirates would continue to overproduce,” Baker said, adding that Kuwait would also continue to surpass its quota.
The United Arab Emirates and Kuwait have been producing 2 million barrels a day apiece, or double their current quotas.
West Texas Intermediate crude oil was 29 to 43 cents lower, with January at $19.25 a barrel; heating oil was 0.61 o 0.94 cent lower, with December at 60.31 cents a gallon; unleaded gasoline was 0.80 cent to 1.36 cents higher, with December at 49.53 cents a gallon.
