STOCKS : Dow Drops 32 Points to Hit a 16-Month Low
Stocks prices fell to a 16-month low Thursday as oil prices continued their relentless drive toward $40 a barrel, feeding fears that the nation’s economy is dangerously unbalanced.
President Bush’s decision to sell crude from the U.S. strategic reerve proved powerless against the upward trend in oil prices, causing stocks to tumble.
The Dow Jones industrial average closed down 32.17 points, or 1.3%, at 2,427.48, after a 25.99-point decline suffered Wednesday.
Trading was heavy, with Big Board volume totaling 182.7 million shares, compared to 155.6 million Wednesday. In the broader market, losing issues outnumbered gaining ones by about 3 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,182 down, 395 up and 422 unchanged.
The brunt of the selling pressure was focused on banks, which have been faced with mounting problem loans in the depressed real estate industry. Bank of Boston cut its dividend and announced major layoffs, adding to Wall Street fears that further cutbacks may be forthcoming.
“With the end of the quarter coming, no one wants to have anything in their portfolio that has anything related to financial services,” said Tom Callahan, executive vice president at Yamaichi International.
Although the market started out on a strong note as oil prices dipped, crude prices quickly advanced on news that the U.S. Navy had fired shots across the bow of an Iraqi tanker. Oil for November delivery closed 87 cents higher at $39.54 a barrel on the New York Mercantile Exchange.
As the market mood soured, the Dow industrials fell more than 50 points, triggering the NYSE’s limit on computer-aided trading, known as index arbitrage. The ban was lifted late in the day.
The Dow managed to recoup ground but still ended at its lowest point since May 11, 1989, when the index closed at 2,382.88.
Poor market fundamentals have led many investment managers to sell equities. Kenneth Gerbino, head of the investment firm that bears his name, said investors “should remain in cash and some gold stocks.”
“The level of skepticism about the market’s ability to hold together is still very high,” said Hugh Johnson of First Albany Corp.
“There’s a lot of nervousness that a hot war will break out in the Gulf,” he said. “If it does, the release of oil from the reserves will not keep prices low.”
Among the market highlights:
* Banking stocks were a major focus. Bank of Boston fell 3/8 to 7 1/8; Continental Bank Corp. was off 5/8 to 7 3/8; Manufacturers Hanover fell 1 to 20 1/4; Citicorp lost 3/4 to 13 3/4; BankAmerica lost 3/4 to 19 1/4, and Chase Manhattan fell 1/8 to 11.
* The bearish mood spread to other financial issues as well. American International fell 3/4 to 59 3/4, Unum Corp. lost 2 7/8 to 38 1/4 and General Reinsurance was down 1 1/2 to 70 7/8.
* Among other issues, Union Carbide, which said it would repurchase up to 14% of its outstanding shares, rose 5/8 to 14 7/8.
* Computer company Unisys dropped 1 5/8 to 5 3/8. It suspended its dividend and said it expects a third-quarter loss.
* Among other actively traded Big Board issues, General Electric was down 3 3/8 at 51 5/8; MCA was down 2 1/4 at 59; IBM was down 1 at 104 3/8 and Philip Morris was down 5/8 at 44.
In Tokyo, stock prices sank to 33-month lows on the Tokyo Stock Exchange with the 225-share Nikkei Stock Average losing 478.71 points, or 2.15%, to close at 21,771.91 points, its lowest finish since Jan. 4, 1988.
Share prices closed higher on London’s stock exchange but well under the day’s best level, as a technical rally faded following a drop on Wall Street. The Financial Times 100-share index closed up 9.1 points to close at 2,009.1.
CREDIT: Bonds Rally on Hope of Budget Accord
The bond market staged a powerful rally, fueled by technical forces and hopes that agreement on cutting the federal deficit will lead to lower interest rates.
The widely watched 30-year Treasury bond surged 1.063 point, or more than $10 for every $1,000 in face amount. Its yield, which falls when the price goes up, tumbled to 9.02% from 9.12% late Wednesday.
Much of the buying reflected technical maneuvers as traders sought to accumulate bonds to compensate for past sales.
Carl Napolitano, market strategist at R. C. Government Securities, said the short-covering rally didn’t really stem from a significant change in sentiment.
“The market had been deeply oversold for a long time,” he said.
Renewed optimism that stalemated budget negotiations in Washington will soon yield an accord on reducing the deficit helped to encourage bond buyers, Napolitano said.
The federal funds rate, the interest banks charge one another for overnight loans, was quoted at 8.063%, down from 8.125% late Wednesday.
CURRENCY: Dollar Tumbles but Gains Against Yen
The dollar weakened against all major currencies except the Japanese yen, which remained pressured by the rising oil prices and another sharp decline on the Tokyo Stock Exchange.
Currency dealers said trading was slow and in a broad range in the absence of any fundamental news.
“The market has no clear direction and it probably won’t until the budget situation is resolved and something happens in the Middle East,” said Earl I. Johnson, a vice president and dealer at Harris Trust & Co. in Chicago.
“(The market) is being constantly buffeted by rumors.”
Johnson said the dollar was hurt by speculation of a budget compromise in Washington but supported by rumors of escalating tensions between the United States and Iraq in the Persian Gulf.
The dollar gained ground against the yen everywhere.
The U.S. currency finished at 1.5610 German marks, down from Wednesday’s 1.5660, and at 137.98 Japanese yen, up from 136.855 yen.
The dollar weakened against the British pound. Sterling rose to $1.8690 from $1.8635 in London, and to $1.8780 from $1.8718 in New York.
COMMODITIES: Gold Joins Silver, Platinum in Slide
Gold prices reversed a three-day trend and tumbled despite modest gains in crude oil prices as speculators began to re-establish gold’s traditional role in the market.
On other commodity markets, silver and platinum extended their losses; energy futures rose slightly; wheat and soybean futures were mostly higher; meat futures were higher and corn was lower.
Gold had continued to rise this week despite the fact that silver and platinum--which the gold market usually follows--plummeted to their lowest levels in years.
Gold settled $1.90 to $2.20 lower on New York’s Commodity Exchange, with the contract for delivery in September at $405 an ounce.
Silver and platinum extended their losses following weak economic activity in the United States, analysts said.
Platinum settled on the New York Mercantile Exchange $10.70 to $11.60 lower, with October at $437.30 an ounce.
Silver fell 3 cents to 2.7 cents on the Commodity Exchange, with October at $4.771 an ounce.
