FINANCIAL MARKETS : STOCKS : Economic Data Calms Traders; Dow Adds 8.34
Wall Street stocks advanced for the fourth straight session Thursday as traders gained confidence that the U.S. economy might do better than expected this year.
The Dow Jones index of 30 industrials rose 8.34 to close at 2,635.59.
Big Board volume was a moderate 157.9 million shares on the New York Stock Exchange, compared to 184.4 million Wednesday. Advancing issues outnumbered decliners in New York Stock Exchange-listed stocks, with 843 up, 633 down and 493 unchanged.
Traders said buying in cyclical sectors such as machinery and automobiles was propelled by increasing faith in the economy.
“There is a growing belief that the economy is not in as bad shape as was thought a couple of months ago,” said Dennis Jarrett, analyst at Kidder, Peabody & Co. If interest rates begin to fall, he said, “we could have a dynamite market.”
The National Assn. of Purchasing Management said the industrial economy continued to contract in February but at a slower rate than in previous months. But the slight improvement in the manufacturing sector was mainly because of one-time factors linked to unusually cold December weather, the private group said.
On Wednesday, the Commerce Department said the economy grew at a 0.9% annual rate in the fourth quarter, an upward revision from the initial estimate of 0.5%. Although growth was still weak, it was stronger than had been expected.
The government said construction spending rose 1.8% in January, the biggest increase in more than a year. Some major chain stores reported good February sales growth.
Interest rates rose Thursday, driving Treasury bond prices down, as traders interpreted the reports as fresh signs that the Federal Reserve will not ease credit soon.
The market appeared to be little affected by another sharp drop in the volatile Japanese stock market. The Tokyo Stock Exchange’s 225-share Nikkei index fell 762.41, or 2.2%, to 33,829.58, reversing a 694-point gain Wednesday.
Analysts were uncertain as to how long any rally might last. Kidder Peabody’s Jarrett predicted that the upward trend could last a month or two.
“That doesn’t mean it goes straight up, but it’s been a good week so far,” he said. The Dow index has advanced more than 70 points so far this week, recovering last week’s 71-point loss.
Harry Laubscher, technical analyst at Tucker Anthony, R. L. Day, said the market has given a short-term buy signal, but he expects a selloff soon that could continue through most of April. But “in May we expect a very good trading rally,” he said.
Charles Jensen of MKI Securities noted that seasonal factors have buoyed stocks. He said pension funds generally pour new money into stocks on the last day of a month and in the first four days of the new month. He saw some rotation in the market as stocks that have been lagging the averages started to catch up.
Union Carbide was the most actively traded issue on the Big Board, falling 2 to 22 1/4 after the company said it was not seeking to sell any of its core businesses, as had been rumored.
Digital Equipment fell 3 1/2 to 74 1/2 as rumors about a takeover bid by a Japanese company were dispelled.
Philadelphia Electric eased 2 1/8 to 18 after two Pennsylvania administrative law judges recommended a rate hike that was below expectations.
Paramount Communications rose 2 1/4 to 45. A Smith Barney analyst reiterated a buy rating on the stock, based partly on expectations that the company’s summer movies will be well received.
Shares of some retailers responded to strong February results. Wal-Mart rose 5/8 to 44 5/8, J. C. Penney rose 3/8 to 66 1/4 and Woolworth climbed 1/2 to 60 1/8.
In London, share prices finished lower after a dreary session on London’s Stock Exchange, pushed down by a poor performance earlier in Tokyo and an uninspiring start on Wall Street. At the London close, the Financial Times 100-share index was down 17 at 2,238.4.
CREDIT Bond Prices Decline for Second Session Bond prices retreated broadly for the second consecutive session on signs of strength in the economy.
The Treasury’s benchmark 30-year bond, which fell 7/8 point on Wednesday, dropped 3/4 point, or $7.50 for every $1,000 face amount.
Its yield climbed to 8.60% from 8.53% late Wednesday. The bond yielded 8.44% late Tuesday.
Analysts said the decline reflected a reaction to strong economic reports. A pickup in the economy could lead to stronger demand for credit, which would push interest rates higher and bond prices lower.
“All of the economic numbers were relatively strong,” said Robert Brusca, chief economist for Nikko Securities International in New York.
He said the figures indicated that “there will be no easing soon, and the market is trying to come to grips with all of this.”
“The (purchasing managers) report raised expectations of a pickup in the economy,” said Elliott Platt, who follows the bond markets for Donaldson Lufkin & Jenrette Securities Corp.
He said many analysts had expected little change in the index.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.313%, unchanged from late Wednesday.
CURRENCY News on Economy Helps Boost Dollar The dollar continued its climb against most major foreign currencies, boosted by the reports showing strength in the U.S. economy and by economic uncertainty in Japan.
Craig Sloane, a currency futures analyst with Smith Barney, Harris Upham & Co., said the reports “seemed to paint the picture that the economy is doing all right.”
Traders said the Federal Reserve sold dollars in an attempt to halt the currency’s rise against the yen, but the intervention appeared to have limited impact.
The West German mark continued to be hurt by concern that a plan for exchanging East German marks for their West German counterpart would cause inflation.
COMMODITIES Gasoline Glut Spurs Sales in Petroleum A virtual glut of gasoline prompted heavy selling of petroleum futures on the New York Mercantile Exchange.
On other commodity markets, coffee futures surged to new 7 1/2-month highs, precious metals advanced, grain and soybean futures were mixed and livestock and meat futures were mixed.
On the New York Merc, West Texas Intermediate crude oil futures settled 28 to 37 cents lower, with the contract for delivery in April at $21.17 a barrel; wholesale home heating oil was 1.13 to 1.93 cents lower, with April at 54.63 cents a gallon; unleaded gasoline was 0.80 cent to 2.43 cents lower, with April at 55.81 cents a gallon.
The April gasoline contract led the way down, trading as low as 54.70 cents a gallon amid reports of burdensome gasoline supplies.
“We’ve got so much of it, as a matter of fact, that on the East Coast they’re having some difficulty finding available storage for all this stuff,” said Jim Ritterbusch, energy analyst with Paine Webber Inc. He said demand for gasoline was off about 5% from a year ago, possibly reflecting weakness in the economy.
The price slide runs contrary to the normal seasonal pattern of rising prices for petroleum products at this time of year as some oil refiners shut down to retool for greater gasoline production after concentrating on making heating oil for the winter months.
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