STOCKS : Dow Beats Back Early Losses to Advance 4.96
Stock prices closed mixed on Tuesday despite expectations of a bankruptcy filing by the parent of the once-powerful Wall Street firm of Drexel Burnham Lambert.
Stocks opened lower after the federal government announced robust retail sales figures for January and then took a sharp dive after Drexel Burnham Lambert Group Inc. said it would seek protection under Chapter 11 of the federal bankruptcy laws.
Drexel said Tuesday that it had defaulted on about $100 million in loans and that a lack of cash threatened other defaults.
Prices for blue chip stocks began to come back slowly as the market digested both developments. However, analysts, who said traders remained in a negative mood, predicted that the market would turn downward within the next few days.
The Dow Jones index of 30 industrials rose 4.96 to 2,624.10 after falling more than 26 points earlier in the session.
The broader market lagged the industrials. Declining issues outnumbered advancing issues in nationwide trading of New York Stock Exchange-listed stocks, with 675 up, 804 down and 489 unchanged.
Big Board volume rose to 144.44 million shares, up from Monday’s 118.39 million.
The Drexel announcement came as only a small surprise to Wall Street, which had been aware of the investment firm’s problems. But the news cast a pall over trading as ticker services reported Drexel developments throughout the day.
Alfred E. Goldman, an analyst with A. G. Edwards & Sons in St. Louis, said during more positive times, Drexel’s problems would likely not have affected the market. But against a backdrop of economic uncertainty and the market’s recent losses, traders “will focus on obvious negatives,” he said.
Analysts said investors were concerned that the rest of the securities industry would be hit by fallout from a Drexel Chapter 11 filing.
After the Commerce Department’s report that retail sales climbed 1.6% in January, Wall Street repeated what has become a familiar process in the financial markets.
The figures were first interpreted as a show of economic strength, and traders sold the market lower, fearing that the Federal Reserve would now be unlikely to relax credit and allow interest rates to fall.
On closer inspection, many traders decided that the surge might be a one-time event. Big-name stocks like IBM came back, but the overall market remained cautious.
IBM was one of the day’s few big winners, picking up 2 1/8 to close at 103 1/4.
Chrysler was off 1/4 to 16 3/8 after announcing its fourth-quarter results, and as expected, said it was selling its Gulfstream Aerospace Corp. for $825 million to a partnership of Gulfstream Chairman Allen E. Paulson and the investment firm Forstmann, Little & Co.
In Tokyo, stocks lost ground, closing with modest losses after buyers all but disappeared from the market and the day’s volume fell to the lowest level in 35 years. The 225-share Nikkei index dropped 181.11 points to 37,107.03, adding to its 228.10-point fall Friday.
Volume was an abysmal 300 million shares, compared to 350 million Friday. It was its thinnest since May 28, 1955, when turnover was 220 million shares, according to a Tokyo Stock Exchange official.
Stocks finished slightly higher on London’s Stock Exchange after an erratic session marked by thin volume. At London’s close, the Financial Times 100-share index was up 6.3 points at 2,293.2.
CREDIT Drexel News Gives Bond Prices a Boost In the credit markets, government bond prices rose as concern about Drexel’s financial woes dominated trading activity and helped boost U.S. Treasuries.
The key 30-year bond rose 17/32 point, or about $5.30 for every $1,000 in face value. Its yield, which falls when the price rises, sank to 8.38% from 8.43% late Monday.
Bond prices slid early in the day after a government report that showed retail sales climbed 1.6% in January, the steepest increase in more than a year. The report briefly raised inflation fears and concern that interest rates could go higher, which would depress bond prices.
However, excluding the automobile sector, the sales gains were not significant, analysts said, and investors turned their attention to problems in the securities industry and the junk bond market.
U.S. Treasuries benefited from what credit market analysts said was a return to the safe haven of government securities.
“We have somewhat of a flight to quality because of the Drexel news,” said Jay Goldinger, a principal at the investment firm Capital Insight in Beverly Hills.
Drexel also said its huge inventory of government securities, believed to be valued at about $1 billion, would be liquidated.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.188%, unchanged from late Monday.
CURRENCY Dollar Advances on Technical Factors The dollar was mostly higher in quiet trading, although the prospect of Drexel’s parent filing for federal bankruptcy protection eroded some of its earlier gains.
Currency dealers said technical factors were largely responsible for pushing the dollar higher. But they said the announcement from Drexel that it planned to file for Chapter 11 depressed the dollar.
Linda McLaughlin, a trader with Chemical New York Capital Markets Group, said the market was concerned that a Drexel filing would force the Federal Reserve to provide more liquidity in the market, thereby lowering interest rates.
Lower interest rates tend to depress a currency’s value.
Gold prices declined after a mixed performance overseas.
On the New York Commodity Exchange, gold bullion for current delivery settled at $417.60 an ounce, down $1.60 from late Monday. Republic National Bank in New York quoted a late bid for gold at $417.50 an ounce, off $1.20.
COMMODITIES Copper Futures Soar to Four-Week High Copper futures prices surged on New York’s Commodity Exchange in reaction to the stock market’s resilience amid reports that Drexel’s parent will file for federal bankruptcy protection.
On other major commodity markets, precious metals were mixed; sugar futures tumbled; energy futures were mixed; grains and soybeans were mostly lower, and livestock and meat futures were mixed.
Copper futures settled 3.0 to 4.55 cents higher in New York, with the contract for delivery in February at $1.0545 a pound, its highest level in about four weeks.
