STOCKS : Dow Off 5.95 as Jitters Over Economy Linger
Stocks finished down Wednesday but higher than their lows for the day on support inspired by a sharp rise in shares of Eastman Kodak and oil companies.
The Dow Jones index of 30 industrials lost 5.95 to 2,899.26. It had been down as much as 15 earlier in the day.
New York Stock Exchange volume was active at 176.8 million shares, up from Tuesday’s 173.8 million. Big Board declines led advances 769 to 732.
Investors remained nervous about the economy, with many fearing a recession after the National Assn. of Purchasing Management’s July index dropped to 47.4% from 51.1% in June, signaling a downturn in manufacturing. The monthly decline was the steepest since January, 1984.
The association also reported that businesses slashed orders for manufactured goods and reduced their inventories last month.
“It’s hard to make a strong case for a turn in corporate earnings in the third quarter, based on what little we’ve seen,” said analyst Hugh Johnson of First Albany Co.
Although interest rates fell in reaction to the purchasers’ report, stock traders took a grimmer view of the data, analysts said. Buyers continued to flock to utility stocks, which are viewed as a safe place to be should the economy plunge into recession.
The Dow utility index jumped 2.89 to 212.90, a 1.4% rise and the seventh straight daily gain.
Despite the nervous tone, Bear Stearns technical analyst Jack Solomon said he was encouraged by the market’s ability to resist heavy selling. “There’s a good wall of worry, and the market is not collapsing with it,” Solomon said.
Market highlights:
* Kodak rocketed 4 1/4 to 42 3/8 on a strong earnings report that surprised analysts. Prudential-Bache raised its recommendation from hold to buy. Another long-lagging stock, Xerox, rose 1 3/8 to 47 after Pru-Bache issued a buy recommendation, citing surprisingly strong second-quarter profit margins in Xerox’s copier business.
* Oil prices soared on rumors of new tension between Iraq and Kuwait, sparking another oil stock rally--though this one was more subdued than recent rallies. Arco gained 1 3/8 to 130 1/2, Baker Hughes rose 1/2 to 32 and Schlumberger was up 1 1/8 to 66 1/2.
* Bank shares continued to tumble in a flurry of selling, as investors reacted to a pessimistic industry forecast from Federal Deposit Insurance Corp. Chairman L. William Seidman. Wells Fargo lost 2 5/8 to 65 7/8, First Chicago fell 1 to 25 5/8, BankAmerica dropped 3/4 to 24 and Citicorp lost 5/8 to 19 3/8.
The carnage in California S&Ls; continued, as HomeFed dropped 1 1/8 to 10, Downey fell 1 1/8 to 14 5/8 and Glenfed lost 3/4 to 10 1/4.
* Utility gainers included Columbia Gas, up 1 1/4 to 47 1/2; SCE Corp., 7/8 to 38 3/4; Public Service Enterprises, 5/8 to 26 1/8, and Houston Industries, 3/4 to 34 1/2.
* UAL shares slid again, losing 4 1/8 to 135 7/8 on worries that a $4.4-billion employee bid for the parent of United Airlines may be crumbling for want of financing.
* Some growth stocks attracted buyers, including Teradata, up 2 to 25 3/4; Home Depot, 2 3/8 to 36 5/8; Gap, 2 to 59 1/8, and Amgen, 2 1/2 to 88 3/4. But health-care firm FHP fell 7/8 to 16 1/8--after trading as low as 14 1/2--on news that it set aside a reserve to cover a jury verdict related to a malpractice suit.
In Tokyo, stocks closed down but off their lows. The key 225-share Nikkei average fell 197.67 points to 30,837.99 after soaring 592.71 on Tuesday.
In London, the Financial Times 100-share index rose 12.8 to 2,339.0. In Frankfurt, shares tumbled amid worries about the cost of German unity. The 30-share DAX index dropped 26.23, or 1.4%, to 1,892.89.
CREDIT Bonds Up on News of Factory Woes Bond prices surged as the grim assessment of the nation’s manufacturing sector added to an already-gloomy economic scene.
The Treasury’s benchmark 30-year bond gained 21/32 point, or $6.56 per $1,000 face amount. Its yield dropped to 8.35% from 8.41% late Tuesday.
Bonds shot up after the National Assn. of Purchasing Management released statistics that portrayed a weak economic scene in July. Bond buyers are assuming that the economy will slow enough to guarantee a sharp drop in interest rates, so they’re locking in yields on long-term bonds now.
Weak economic growth tends to boost prices of long-term fixed-income investments such as bonds, because of the notion that inflation will not be high enough to erode their value.
Traders also believe that when economic growth is weak the Federal Reserve is more likely to relax credit, which allows interest rates to drop and raises the value of existing bonds.
The purchasing managers’ report “took on added importance because it suggested other related figures might not be as strong as might have earlier been expected,” said Scott Winningham, market analyst with Stone & McCarthy Research Associates Inc. in Princeton, N.J.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8%, down from 8.063% Tuesday.
CURRENCY Dollar Rises Except Against the Mark The dollar rebounded after Tuesday’s selloff, although it failed to advance much from recent lows against the German mark.
The dollar bought 147.25 Japanese yen in late New York trading, up from 145.75 late Tuesday. But it rose only a fraction to 1.5880 West German marks from 1.5875, barely above its lowest level against the mark in 2 1/2 years.
After Tuesday’s plunge, dealers said the dollar was oversold and due for a correction. Tuesday’s selling was driven by the belief that the U.S. economy is weak enough to warrant lower interest rates.
COMMODITIES Iraq-Kuwait Stories Boost Gold and Oil Reports of heightened tension in the 2-week-old dispute between Iraq and Kuwait helped boost gold and oil futures prices.
On the New York Mercantile Exchange, West Texas Intermediate crude oil futures settled 32 to 85 cents higher, with the contract for delivery in September up 85 cents at $21.54 a barrel; heating oil was 1.85 to 2.84 cents higher, with September at 61.19 cents a gallon.
Energy analysts said unconfirmed reports of Iraqi troop movements within Kuwaiti territory encouraged buyers. James Steel of Refco Inc. said traders have been speculating that Iraq might seize certain Kuwaiti oil fields because it disagrees that the fields should be under Kuwait’s ownership.
Steel said indications that some influential OPEC members are taking steps to abide by a new oil production agreement also supported prices.
Gold and silver futures also rose on the Iraq-Kuwait news, reflecting not only the inflationary effects of higher oil prices but also the tendency among investors to seek the safety of precious metals during times of international conflict.
Gold futures settled $3.30 to $3.40 higher on New York’s Commodity Exchange, with August at $373.30 an ounce; silver was 3.2 cents to 3.5 cents higher, with August at $4.82 an ounce.
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