Financial Markets : STOCKS : Dow Falls 16.89 in Last-Minute Profit Taking
Blue chip stocks snapped a four-day winning streak Tuesday and closed down sharply, hit by a bout of profit taking in the final hour of trading. The Dow Jones index of 30 industrials fell 16.89 points to 2,738.74.
In the broader market, declining issues outnumbered advancing ones in nationwide trading of New York Stock Exchange-listed stocks, with 892 down, 598 up and 495 unchanged.
Big Board volume surged to 177.32 million shares, up from 142.30 million in Monday’s session.
News that consumer prices rose a surprisingly strong 0.5% in February sparked inflationary fears and led to an early morning selloff in stocks and bonds.
But Japanese purchases of U.S. Treasury securities later in the day pushed the bond market higher and also lifted stock prices.
Wall Street also brushed aside the 1.48% drop in Tokyo stock prices that followed a 1 percentage point hike in the Japanese discount rate to 5.25%. Tokyo’s stock market losses so far this year have topped 20%.
Hugh Johnson, senior vice president of First Albany Corp. in Albany, N.Y., suggested that the Japanese may have to increase the rate again in the near future.
“I’m convinced we have unlinked ourselves from the Japanese market,” said Gene Jay Seagle, Gruntal & Co.’s director of technical research.
But profit taking finally held sway in the late afternoon.
The most active issue on the New York Stock Exchange was the Bank of Boston, slipping 1/8 to 15 1/4 on more than 8.6 million shares traded.
UAL, parent of United Airlines, slipped 2 1/2 to 152 in profit taking after a gain of 12 points Monday. Unions are studying a buyout of the firm with a large shareholder.
Other airlines gained. American Airlines parent AMR Corp. rose 7/8 to 67 1/4, Delta gained 1 to 74 1/8 and British Airways rose 5/8 to 35 1/4.
Shares of Curtiss-Wright jumped 7 1/2 to 59 1/2 on talk that the death of its chairman could lead to a possible sale.
In London, shares ended higher in moderately active business after the announcement of Britain’s budget for the next year. The Financial Times 100-share index closed 21.7 points higher at 2,259.7.
CREDIT Japanese Buyers Push Bonds Higher Bond prices rallied strongly in a wild turnaround that credit market strategists linked to a spree of buying by Japanese investors worried about the faltering yen.
“We had an exciting day,” said William Veronda, fixed-income manager at Financial Programs Inc., a Denver investment firm.
The Treasury’s key 30-year bond, after falling as much as 5/8 point or $6.25 per $1,000 in face amount, on news of worse than expected inflation, rebounded and ended 7/8 point higher. Its yield, which falls when prices rise, dropped to 8.45% from 8.53% late Monday.
Brokers said the catalyst for the rally seemed to be rooted in foreign buying, largely by Japanese institutional investors who funneled money into the U.S. market because of the dollar’s growing strength against the yen.
Other strategists attributed the turnaround partly to the quickly fading effect of government economic reports that suggested inflation was worsening. They said the underlying trends show inflation is under control, which encourages purchases in fixed-income investments such as bonds.
The federal funds rate, the interest rate banks charge each other on overnight loans, was 8.188%, unchanged from late Monday.
CURRENCY Dollar Benefits as Traders Sell Marks The dollar rocketed higher in heavy trading, benefiting from profit taking in West German marks and in the Japanese yen.
Intervention by several central banks aimed at shoring up the sagging yen failed to alter the dollar’s course. The banks reportedly sold dollars on world foreign exchange markets and bought yen.
Speculation that U.S. interest rates would not decline soon, which grew when the government reported an unexpectedly strong inflation reading for February, also encouraged dollar buying.
Gold prices tumbled. Republic National Bank of New York quoted a bid of $392.40 for an ounce of gold as of 4 p.m. EST, down $8.40 from Monday’s late bid.
Most of the momentum for the dollar’s broad advance came from sales of West German marks to collect profits amassed during the currency’s recent climb, a trader said.
Traders had scrambled to buy marks ahead of Sunday’s East German elections and bought more Monday when the results indicated a faster move toward a unified Germany. But as the euphoria over the voting eased, traders lightened their mark holdings.
As trading ended in New York, the dollar was quoted at 1.7048 West German marks, up from 1.6860 marks late Monday.
One dollar bought 154.20 Japanese yen late in New York, more than 153.05 yen late Monday. Earlier, in Tokyo, the dollar rose to a closing 153.65 yen from 153.55 yen at Monday’s close. Later, in London, it rose to 153.85 yen.
COMMODITIES Dollar’s Strength Upsets Gold Prices Gold futures prices skidded well below $400 an ounce on New York’s Commodity Exchange as a stronger dollar and a rise in Japanese interest rates prompted aggressive selling of gold by banks and Far Eastern investors.
On other commodity markets, coffee futures surged; livestock and meat futures retreated; energy futures were mixed, and grains and soybeans were mostly higher.
Gold futures settled $8.60 to $9.60 lower, with the contract for delivery in April at $393.30 an ounce, a four-month low.
Silver futures finished 5.8 cents to 7.7 cents lower on the Commodity Exchange, with March at $5.043 an ounce; platinum futures dropped $8.50 to $8.70 on the New York Mercantile Exchange, with April at $493.60 an ounce.
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