FINANCIAL MARKETS : STOCKS : Inflation Fears Rattle Market; Dow Falls 31.53
The stock market wilted Friday under fresh signs that inflation is rising sharply, sending stock prices sharply lower.
The Dow Jones index of 30 industrials fell 31.53 to 2,645.05, extending its drop for the week to 50.90 points.
In the broader market, declining issues outnumbered advancers by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 403 up, 1,070 down and 491 unchanged.
Big Board volume totaled 130.63 million shares, down from Thursday’s 141.33 million.
Before the trading day began, the Commerce Department estimated that the gross national product grew at a 2.1% annual rate, after adjustment for inflation, in the first quarter.
An accompanying gauge of inflation showed prices in the January-March period rising at a 7 1/2-year high of 5.7% annually.
Analysts said those figures tended to reinforce fears on Wall Street that the Federal Reserve might soon feel compelled to tighten credit, to keep inflation in check.
Other factors, including weak corporate earnings, weighed on the market, traders and analysts said.
“Rates are rising, and there is slowing corporate profitability and continued credit quality problems,” said Kenneth Spence, director of technical analysis at Salomon Bros.
Interest rates were mixed in the credit markets. Brokers said some bond traders were a little relieved that the GNP increase wasn’t any bigger than it turned out to be.
Citicorp dropped 1/2 to 21 7/8 in active trading on word that Standard & Poor’s Corp. lowered its ratings on most of the firm’s debt.
Losers among the blue chip industrials included Exxon, down 5/8 at 45; IBM, down 1 3/8 at 107 3/8; Philip Morris, down 7/8 at 41 1/2, and McDonald’s, down 1/4 at 30 3/8.
Sun Microsystems rose 3/4 to 23 3/4 in the over-the-counter market. Late Thursday, Sun reported earnings for its fiscal quarter ended March 30 of 40 cents a share, up from 38 cents a year earlier.
Teradata tumbled 4 to 24 1/2 despite reporting quarterly earnings of 42 cents a share versus 1 cent a year ago. The L.A.-based computer company said it is facing softness in some European markets, and that it is monitoring the trend “very closely.”
Financial services firm Broad Inc. also fell, losing 3/8 to 7 5/8, despite higher earnings.
Northrop sank 5/8 to 15 1/8 on word of further defense cutbacks. Teledyne, another defense contractor, continued to plunge, off 1 3/8 to 27, a 52-week low.
Prices on the Tokyo Stock Exchange closed higher after wild fluctuations ranging about 200 points. The Nikkei 225-share index, which lost 139.78 points Thursday, gained 160.22 points to end the week at 29,584.80.
Share prices fell sharply on London’s Stock Exchange, depressed by the disappointing U.S. economic figures. The Financial Times 100-share index fell 27 points to close at 2,106.6.
CREDIT Bond Prices Edge Up in Slow Trading Bond prices rose slightly in light trading as the market shrugged off the government report showing strong economic growth and rising inflation. But long Treasury bond yields remained above 9%.
The Treasury’s closely watched 30-year bond rose 5/32 point, or $1.56 for each $1,000 in face value. Its yield, which falls when prices rise, dipped to 9.02% from 9.04% late Thursday.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8%, down from 8.188% late Thursday.
CURRENCY Early Dollar Rally Turns Into Decline The dollar declined against most major currencies in trading dominated by the West German mark and Japanese yen.
News that inflation has picked up this year initially caused heavy dollar buying, but it tapered off in late morning.
Foreign exchange dealers said the dollar traded within a narrow range as most of the buying and selling interest was directed toward the mark and yen.
“Really, the day was dominated by cross-trading, particularly the mark-yen,” said Bob Morrissey, senior trader at the Bank of Boston.
Traders snapped up dollars in the morning after the government released the inflation report.
They bought on the assumption that the Federal Reserve Board might step up its battle against inflation by pursuing a tighter credit policy, which would lead to higher interest rates. Higher rates would boost returns on dollar-denominated investments and tend to increase demand for dollars.
But the buying enthusiasm soon waned. Traders apparently concluded that the central bank wouldn’t adjust its policy in the immediate future. Activity typically slows on Fridays because traders prefer not to establish significant new positions ahead of a weekend.
The dollar’s trading day began in Tokyo where it rose to 159.08 Japanese yen from 158.77 on Thursday. Later in London, it fell to 158.80. By the time trading was done for the day in New York, the dollar had risen to 159.30 yen from 159.23 late Thursday.
COMMODITIES Soybean Prices Still Heading Higher Soybean futures prices surged to their highest levels since last summer, extending a rally linked to the rain-slowed Brazilian harvest and fears that the recent hot, dry Midwestern weather might be a harbinger of drought.
On other commodity markets, grain futures ended mixed, cattle were higher; pork futures were mixed; oil futures were mixed, and precious metals were mixed.
