STOCKS : Dow Reacts to Tokyo Plunge, Tumbles 32.21
Stocks closed sharply lower Thursday on fears that Wall Street may have finally lost its immunity to Tokyo’s stock market plunge.
It was the third straight decline on the New York Stock Exchange, following a vigorous rally in recent weeks.
The Dow Jones index of 30 industrials tumbled 32.21 points to 2,695.72, breaching the key psychological level of 2,700. The blue chip barometer was down more than 40 at one point in the afternoon.
In the broader market, declining issues outstripped advancing ones by around 3 to 1 in nationwide trading of NYSE-listed stocks, with 1,200 down, 368 up and 409 unchanged.
Big Board volume totaled 175.93 million shares, up from Wednesday’s 130.99 million.
“It’s a belated reaction to the Japanese market,” said Charles Jensen, an analyst for MKI Securities Corp. “We’ve been ignoring that market for a couple of weeks. You can only ignore reality for so long.”
Wall Street has long regarded the Tokyo market as overvalued relative to U.S. stock prices, and analysts here have long said a retreat was overdue. But investors were unsettled by the degree of Tokyo’s loss.
Dealers blamed the Tokyo market’s tumble on the Japanese yen’s continuing erosion against the dollar. The yen’s losses occurred despite Tuesday’s 1% rise in Japan’s official discount rate to 5.25%, which was intended to bolster the weak Japanese currency.
Monte Gordon of Dreyfus Corp. said the uncertainty created by the Tokyo plunge encouraged some investors to sell stocks and move into cash.
Merrill Lynch & Co., the largest broker on Wall Street, suggested such a move in its model portfolio Thursday morning. Morgan Stanley & Co. joined in with a similar recommendation.
Analysts said the New York market was ripe for a pullback after its recent advance, and the Japanese debacle exacerbated Wall Street’s retreat.
“The market was overextended,” said Monte Gordon, vice president and director of research at Dreyfus Corp. “You would expect the market to retrace.”
Last week, the Dow Jones average gained a net 57.89 points to 2,741.22, its highest level since early January.
In London, share prices rose on news that Britain’s trading position improved in February. The Financial Times index of 100 shares closed up 8.6 points at 2,258.9.
CREDIT Tokyo Concerns Boost Bond Prices
Bond prices finished higher, with shorter-term issues posting larger gains than long-term bonds.
Analysts said strength in the dollar and worries about the prolonged slide in Tokyo’s stock market helped draw investors to U.S. government securities.
The market’s benchmark 30-year Treasury bond rose 1/16 point, or about 63 cents per $1,000 in face value. Its yield, which falls when prices rise, slipped to 8.48% from 8.49% late Wednesday.
Robert Brusca, an economist and fixed-income analyst at Nikko Securities Co. International, said prices moved higher in the morning, reflecting a view that the U.S. bond market is a haven during times of financial uncertainty in Japan and political uncertainty in the Soviet Union.
By midday, the 30-year bond price was up 5/8 point.
But Brusca said prices reversed course abruptly in the afternoon, with longer issues giving up nearly all their gains for the day and shorter-term issues paring their gains by about half.
“It was like somebody pulled the plug,” he said, adding that he was at a loss to say what caused the reversal.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.25%, down from 8.438% late Wednesday.
CURRENCY Decline on Wall St. Drags Dollar Down
The dollar declined against most major currencies except the sagging Japanese yen as the weak showing on Wall Street unsettled investors.
Dealers said cross trading involving sales of Japanese yen and purchases of West German marks dominated activity in the currency markets.
“People were watching the Dow Jones, but I don’t think that was the most important factor in the foreign exchange markets,” said Renato Strauss, assistant vice president at Bank Julius Baer & Co. in New York.
Sales of dollars to collect profits made during its recent strong performance also weighed down the currency.
After four weeks of decline, the British pound regained some lost ground after the government reported slightly better than expected trade figures for February.
One British pound was quoted at $1.6040 late in New York, stronger than late Wednesday’s level of $1.5955. In London, one British pound cost $1.6015 late Thursday, more expensive for buyers than Wednesday’s late $1.5965.
One dollar bought 155.105 Japanese yen late Thursday in New York, up from 154.365 yen late Wednesday. Earlier in Tokyo the dollar closed at 154.83 yen, up from 154.00 yen late Wednesday in London, when the Tokyo markets were closed for a holiday.
Gold prices gained in domestic and overseas dealing.
On New York’s Commodity Exchange, gold for March delivery settled at $394 an ounce, up $2.20 from Wednesday. Later, Republic National Bank of New York quoted a bid of $394 for an ounce of gold, $2.10 higher than Wednesday’s late bid.
COMMODITIES Labor Accord Hurts Copper Futures
Copper futures prices fell from five-month highs on New York’s Commodity Exchange in response to an easing of labor tensions in Canada and Peru and a sharp drop in stock prices.
On other commodity markets, precious metals advanced; grains and soybeans were mixed; cocoa futures surged; sugar retreated; energy futures fell, and livestock and meat futures were mostly higher.
Copper futures settled 1.5 to 3.5 cents lower, with the contract for spot delivery at $1.291 a pound.
Copper futures had surged as much as 4.6 cents Wednesday on speculation that union workers at a Noranda Inc. copper smelter in Canada’s Quebec province would reject management’s final contract offer, setting the stage for a strike.
But workers approved the contract by a narrow margin, and reports of the results early Thursday morning gave the copper market its initial downward shove.
Later in the morning, the port workers union in Peru announced it had ended a nationwide strike after two days, freeing Peruvian copper exports to move again.
A miners strike against Southern Peru Copper Corp., the country’s largest copper producer, continued into its 11th day but analysts said the company had copper stockpiled against the strike and had not yet broken any shipping commitments.
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