UNCERTAINTY IN THE FINANCIAL MARKETS : Bargain Hunters Help Stocks Revive; Dow Closes Up 25
The stock market staged an impressive turnaround Friday after an initial plunge in prices lured investors from the sidelines as they hunted for bargains.
The Dow Jones industrial average closed up 25.00 at 2,452.48, having worked back from a near 50-point deficit earlier in the day. For the week, the index lost 59.90, or 2.4%. The index hit a 16-month low on Thursday.
In the broader market Friday, gaining issues outpaced losers, with 877 up, 693 down and 408 unchanged on the New York Stock Exchange. Big Board volume was a hefty 201.01 million shares, up from 182.69 million in the previous session.
Blue chips tumbled sharply at the opening, falling nearly 50 in the first half-hour as investors dumped stocks after steep drops in foreign markets.
Traders got another dose of bad news early in the day when the Commerce Department reported a steep decline in its main gauge of future economic growth. The index of leading indicators dropped 1.2% in August from July. It was the steepest drop in three years in the index, designed to forecast economic activity six to nine months in advance. “The level of nervousness about the economy was intense this morning,” said Hugh Johnson, chief investment officer at First Albany Corp.
Analysts said the figure provided yet another signal that the economy was headed for a recession, as oil prices remained near their highest levels in 10 years.
Oil for November delivery fell 3 cents to $39.51 a barrel on the New York Mercantile Exchange after rising steadily through the week.
Stocks were whipped into a late rally as cheap prices lured buyers. “People are really seeing cheap stocks and they’re willing to take a bit of a risk,” said James Schroeder, an analyst with MMS International in Chicago.
Blue chip issues led the advance, and the broader market joined in shortly before the close. “We seem to have gone from capitulation to jubilation all in one session,” said Eugene Peroni, an analyst with Janney Montgomery Scott in Philadelphia.
Among the market highlights:
* Bank stocks, which had been badly bruised since Chase Manhattan announced a restructuring, layoffs and a dividend cut last week, helped bolster the market as they regained some ground. Citicorp was up 1/2 at 14 1/4, Chase Manhattan gained 3/4 to 11 3/4, Bank of Boston was up 3/4 at 7 7/8, BankAmerica was up 1 at 20 1/4, J.P. Morgan jumped 2 1/8 to 32 7/8 and Chemical Bank was up 1 3/8 at 15 1/2. Wells Fargo rose 3 to 45 3/4, Security Pacific added 2 7/8 to 22 1/2 and First Interstate gained 2 5/8 to 22 3/8.
* UAL, parent of United Airlines, also moved higher, gaining 6 3/4 to 97 3/8 on news that investor Marvin Davis offered to join the employee buyout of the carrier.
* Ralston Purina, which announced a share buyback plan of up to 2 million of its approximately 56 million common shares, rose 3 3/8 to 99 1/8.
* Computer company Sun Microsystems fell 3 7/8 to 21 7/8. Goldman Sachs cut its earnings estimates and downgraded the stock, traders said.
* Among other actively traded Big Board issues, Unisys, which is eliminating its dividend, lost 3/8 to 5; General Electric rose 2 7/8 to 54 1/2; Philip Morris rose 1 1/4 to 45 1/4; Wal Mart was up 7/8 at 27 1/4, and the Limited rose 7/8 to 13 3/4.
In foreign trading, British shares dropped but picked up from the day’s lows in late trading. The Financial Times 100-share index closed down 18.9 at 1,990.2.
The badly battered Tokyo stock market fell sharply overnight, with the benchmark Nikkei index ending down 788.41 points, or 3.62%, at 20,983.50.
Shares also fell in Frankfurt in nervous trading, still vulnerable to any news from the Gulf pointing to a rise in tension. The DAX index of 30 leading shares fell 19.19 to 1,334.89, a loss of 111.68 this week, or 7.7%.
CREDIT
Budget Optimism Boosts Bond Prices
Treasury bond prices climbed as the market anticipated an imminent agreement on the federal budget and traders saw another sign of increasing economic weakness.
The widely watched 30-year Treasury bond rose 23/32 point, or $7.19 for every $1,000 in face amount. Its yield dropped to 8.94% from 9.02% late Thursday.
Bond traders believed congressional negotiators would reach a budget agreement by the deadline Sunday night, the end of the 1990 fiscal year, said Terrence Doyle, a trader with Manufacturers Hanover Trust Co.
For weeks, the bond market has anticipated that a federal budget agreement could lead the Federal Reserve to allow interest rates to fall. Lower rates benefit fixed-return investments such as bonds.
Bond prices also were supported by the release of the index of leading indicators. The signs of economic weakness raised hopes that the Fed will ease interest rates.
The federal funds rate, the interest banks charge one another for overnight loans, was quoted at 8%, down from 8.063% late Thursday.
CURRENCY
Dollar Makes Gains in Slow Trading The dollar gained against all major currencies except its Canadian counterpart in unusually slow U.S. trading Friday after moving mostly lower overseas.
The dollar traded within a narrow band on domestic and foreign markets.
The typically light volume that ordinarily occurs on Fridays was curtailed even further by the approaching end to the month, calendar year quarter and half of Japan’s fiscal year. All three occur Sunday.
The start of the Jewish Yom Kippur holiday, which began at sundown Friday, also lightened liquidity because some dealers left work early.
The dollar firmed against the Japanese yen in New York, rising to 138.50 yen in late trading, from 137.98 late Thursday.
The British pound lost ground and was quoted late in the day at $1.8760, down from $1.8780 late Thursday.
The dollar finished at 1.5665 German marks, up from Thursday’s close of 1.5610.
COMMODITIES
Gold Prices Decline After Early Run-Up Gold futures prices followed energy prices in an upward spiral but slipped late in the day amid signs the government is trying to halt runaway speculation that produced a volatile week on the commodity and stock markets.
Gold settled $2.50 to $3.30 on New York’s Commodity Exchange, with the contract for delivery in September at $402.50 an ounce.
On other commodity markets, silver and platinum extended their losses; soybean futures prices slipped; grains were mixed; livestock futures were mixed and pork futures were higher.
Platinum rallied from an opening low on the New York Mercantile Exchange and settled $3.70 to $4.20 lower, with October at $433.10 an ounce. Silver settled 2.5 cents to 1 cent lower on the Commodity Exchange, with October at $4.761 an ounce.
Soybean futures fell and grains were mixed during a day of thin, quiet trading on the Chicago Board of Trade.
Market Roundup, D6
