FINANCIAL MARKETS : STOCKS : Dow Surges 25.23 as Banking Issues Gain
Stock prices ended sharply higher Thursday as the market drew strength from renewed interest in banking issues and shrugged off remaining vestiges of concern over the collapse of brokerage house Drexel Burnham Lambert Inc.
The Dow Jones index of 30 industrials rose 25.23 points to close at 2,649.55.
Advancing issues outnumbered declining ones in nationwide trading of New York Stock Exchange-listed stocks, with 908 up, 583 down and 469 unchanged.
Big Board volume moved up to 174.63 million shares from Wednesday’s 138.53 million.
The market gained ground steadily throughout the day, with banking stocks and two new issues leading the advance.
Traders drew confidence from the fact that the market “survived Drexel,” said Alfred E. Goldman, a senior vice president at St. Louis-based A. G. Edwards & Sons Inc., referring to the liquidation of Drexel, whose parent sought bankruptcy court protection earlier this week.
The government reported a 29.6% rise in January housing starts and a sharp rise in housing permits, both of which were significantly stronger than expected.
“They tend to dispel the notion that we’re in a recession, and the case for a recession during 1990 was . . . certainly weakened,” said Hugh Johnson, a senior vice president at First Albany Corp.
Still, investor enthusiasm for equities remained restrained until a clearer picture of the economy emerges.
Heading the Big Board’s most-active list were two new issues. Growth Fund of Spain, a single-country mutual fund, finished at 13, up 1 from its initial price, and Reader’s Digest closed at 22, up 2 from its offering price. Analysts said heavy trading in these two issues affected overall volume.
Several analysts recommended a number of money center and regional banks. Gainers within the sector included BankAmerica, up 1 1/2 at 28 1/2; Chase Manhattan, up 1 3/4 at 29 1/4; Citicorp, up 1 1/2 at 25; Manufacturers Hanover, up 1 3/8 at 33 1/8, and J. P. Morgan, up 1 1/8 at 37 1/8.
Tokyo stocks closed higher, but lacked drive, with investors still jittery ahead of Sunday’s Japanese general elections. The key 225-share Nikkei surged 316.10 points to close at 37,471.99.
Stock prices also finished higher on London’s Stock Exchange, after late afternoon international buying perked up the market. The Financial Times 100-share index closed up 15.5 points at 2,313.8.
CREDIT Good Construction News Upsets Bonds News of a dramatic rebound in housing construction knocked bond prices lower Thursday in active trading.
The Treasury’s closely watched 30-year bond tumbled 1/2 point, or $5 for every $1,000 in face value. Its yield, which rises when the price declines, jumped to 8.45% from 8.41% late Wednesday.
Analysts said the Commerce Department’s report on housing starts in January, which indicated strength in the economy, weakened bond prices.
Analysts said the rise in housing starts probably also was caused by intensified economic activity.
A stronger economy raises concern that the Federal Reserve might push interest rates higher to help to curb inflation. Higher rates hurt bond prices.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.375%, up from 8.125% late Wednesday.
CURRENCY Dollar Advances as Traders Adjust News for Dollar
The dollar advanced against all major currencies except the Canadian dollar, although there was little news to guide the foreign exchange markets.
Analysts said the dollar rose as traders adjusted their positions after the U.S. currency’s recent losses.
Robert Ryan, senior foreign exchange trader with the Bank of New York, said concerns about the bankruptcy filing by Drexel earlier this week had abated.
Ryan said there was no fundamental news to influence the market Thursday. However, he said, the dollar could drift higher.
Dealers reported that the West German mark, which has soared in response to the political changes in Eastern Europe, had lost some confidence, but the dollar lacked substantial support to break into any new ground against it.
The dollar rose to 1.6935 marks in New York from 1.6750 late Wednesday, after closing at 1.6805 marks in Frankfurt, up from 1.6715.
The British pound fell against the dollar, closing at $1.6855 in New York, compared to $1.6960 late Wednesday. In London earlier, sterling cost $1.6936, cheaper than Wednesday’s late $1.6963.
The dollar closed at 144.775 Japanese yen in New York, up from 144.35. Earlier in Tokyo, the dollar closed at 144.45 Japanese yen, up from 144.35. In London late Thursday the dollar closed lower at 144.38 yen.
COMMODITIES Gold Depressed by Economy’s Strength Gold and platinum futures prices weakened amid new signs of economic strength, including a record-breaking rise in housing starts and a surge in stock prices.
On other commodity markets, copper futures rose; petroleum futures gained; coffee futures slumped; grains and soybeans were mixed; pork bellies surged, and livestock futures were mixed.
Gold futures fell $4.30 to $5.10 an ounce on New York’s Commodity Exchange, with the contract for delivery in February settling at $412.40 an ounce. Silver futures finished unchanged to 0.3 cent higher, with March at $5.33 an ounce.
The platinum market gave up most of the previous session’s gains. Platinum futures settled $4 to $5 lower on the New York Mercantile Exchange, with April at $522.90 an ounce.
Precious metal traders focused on a variety of bullish factors including the government’s January housing-starts report and expectations that another government report today will show a reduction in the U.S. trade deficit in December.
Positive news about the economy is generally bearish for gold prices since investors tend to buy gold as a hedge against an economic downturn.
Thursday’s 25-point rise in the Dow Jones index also quelled investment demand for gold, analysts said.
Analysts also cited profit taking ahead of the upcoming three-day weekend, and rumors that the struggling brokerage firm Drexel Burnham Lambert was again liquidating positions in the precious metal markets to raise cash.
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