STOCKS : Stocks’ Early Gains Halted; Dow Sheds 5.69
A late afternoon rise in oil prices combined with concerns about the economy to send Wall Street stocks lower Wednesday.
The Dow Jones industrial average slipped 5.69 to close at 2,442.33.
Advancing issues and declines ran about even in nationwide trading of New York Stock Exchange-listed stocks, with 753 up, 758 down and 455 unchanged. Volume continued to rise, reaching 156.06 million shares on the Big Board, against Tuesday’s 153.45 million.
Stocks were boosted early in the session by a call from Iraq’s ambassador to the United States for a negotiated settlement to the Persian Gulf crisis. But the effects were short lived on Wall Street.
“There’s so much rhetoric that no one pays attention,” said Richard Meyer, trading chief at Ladenburg Thalmann.
The focus soon switched back to the economy, particularly after oil prices reversed their morning trend to inch upward. Crude oil for December delivery closed up 69 cents at $35.23 a barrel on the New York Mercantile Exchange.
Stocks were depressed by reports from the Federal Reserve and Chicago purchasing managers depicting slow growth.
The Fed’s periodic “Beige Book” regional report said that total loan demand at commercial banks was lackluster and that business and consumer confidence was waning in many parts of the country.
Meanwhile, the Chicago purchasing managers’ October index, often viewed as a precursor to the national survey, fell to 46.8% from 50.3% in September. A level below 50% indicates a slowing economy.
“Those two items today suggest the economy is weak, despite the 1.8% (third-quarter GNP) growth,” said First Albany analyst Hugh Johnson.
“I think over the near term, investors are wise to play it safe until some event occurs to change things,” he said.
Perhaps ominously, the market’s two weakest spots Wednesday were food and drug stocks--which had been among the few rising groups of late.
Among the market highlights:
* Utility stocks took the lead for the second day in a row, bolstering the view of those analysts who believe that interest rates are headed lower. Rising utilities often foreshadow rate drops because the stocks are seen as proxies for bonds. The Dow utility index jumped 1.1%, led by Columbia Gas, up 1 3/4 to 54 3/4, Peoples Energy, up 1 1/8 to 24 7/8, and Public Service Enterprises, up 7/8 to 26 3/8.
* Drug stocks suffered from profit taking and other concerns. Lilly dropped 2 to 67 3/8. The company’s controversial anti-depressant drug Prozac will be featured on CBS’ “48 Hours” program. Elsewhere, Schering-Plough dropped 1 3/4 to 43 3/4 after a group of trial lawyers cautioned that the company’s prescription asthma treatment, theophylline, may pose possible health risks to patients.
But hospital and HMO stocks were strong after several firms reported good earnings. FHP Intl. rose 5/8 to 12 3/8, United Healthcare gained 5/8 to 17 5/8 and Humana added 1 3/8 to 41 3/4.
* Food stocks also were slammed by profit takers. Kellogg dropped 3 1/8 to 68 1/2 after the company suggested that its margins may not improve next year. Borden plunged 1 7/8 to 28 7/8 after it too said margins may weaken because of greater competition. Other losers: General Mills, down 3 1/2 to 83 1/8, and Quaker Oats, off 7/8 to 47.
* Tyco Laboratories plummeted 5 5/8 to 38 3/8. Traders said Merrill Lynch made negative comments on the company, which makes fire protection systems. Another big loser was First Brands, which slumped 3 1/2 to 15 1/8 after saying it ended talks with a potential acquirer, citing financing difficulties.
* L.A.-based Coast Savings jumped 5/8 to 3. Investor Ted Krutschnitt disclosed that he raised his stake to 9.9% on Oct. 26. He has been a buyer since summer.
* Computer firm Teradata dropped 1/2 to 7 1/4 after disclosing a loss of 50 cents a share in the third quarter. The figure was at the high end of investors’ expectations. Among other tech firms, AST Research continued to advance, rising 1 1/4 to 20 3/4.
In London, stock rallied in the morning on hopes of an interest rate cut but eased off the highs when the central bank left its dealing rate unchanged. The Financial Times 100-share index rose 16.4 points to 2,050.3.
German share prices ended mixed. Worries about the Gulf crisis kept investors sidelined. The 30-share DAX index ended 2.68 points higher at 1,433.82.
Stocks closed slightly lower on the Tokyo Stock Exchange with the 225-share Nikkei average off 48.30 to 25,194.10.
But by midday today, the Nikkei had plunged 759.97 points, or 3%, to 24,434.13, in what analysts said was a correction after the market’s recent strong rebound.
CREDIT: Purchasers’ Report Boosts Bond Prices
Bond prices jumped amid the fresh indications that the nation’s economic slide may be worsening.
The Treasury’s bellwether 30-year bond rose 23/32 point, or $7.19 per $1,000 in face amount. Its yield fell to 8.75% from 8.81% Tuesday.
The price rise came despite an afternoon announcement by the Treasury that it will sell a record $34.25 billion of new securities next week--$250 million more than traders anticipated. Ordinarily this would spur fears of an oversupply of new debt, driving down demand for bonds.
“We had more supply than expected, yet the market continues to move up,” said Mitchell Held, chief financial economist at Smith Barney, Harris Upham & Co.
Instead, traders focused on a report issued by purchasing managers in Chicago that showed a sharp decline in business activity among Midwestern industrial companies.
Bond traders use the report as a harbinger of a widely followed monthly survey on the economy, due out today, by the National Assn. of Purchasing Management.
Generally, credit markets rise on sour economic news on the belief that interest rates will drop.
The federal funds rate, the interest on overnight loans between banks, traded at 7.813%, up from 7.688% Tuesday.
CURRENCY: Dollar Advances in Domestic Trading
The dollar closed higher against most major foreign currencies in domestic trading after generally finishing lower abroad.
Analysts said there was no one force driving the foreign exchange market, but various factors affected the dollar’s performance against specific currencies.
Mike Faust, analyst with Money Market Services in Chicago, said the dollar gained ground against the German mark on speculation that the Bundesbank, the German central bank, might lower interest rates.
Lower interest rates reduce a currency’s attractiveness because investments denominated in that currency earn less.
The dollar rose to 1.518 marks in New York from Tuesday’s 1.514, and in Far East trading early today rose to 1.522.
The dollar had its best showing against the Japanese yen, which was hurt by pessimism over the Persian Gulf crisis. In New York, the dollar soared to 130.10 yen from 128.72 late Tuesday.
COMMODITIES: Market Maneuver Lifts Soybean Prices
Prices of soybean futures rebounded from three-month lows Wednesday on the Chicago Board of Trade in what amounted to a market maneuver by grain dealers to transfer some of their storage costs to speculators.
Soybean futures settled 0.50 cent lower to 2.25 cents higher, with the contract for delivery in November at $5.92 a bushel.
The November contract fell as low as $5.89 a bushel, its lowest level since Aug. 3, before bouncing back late in the session.
In the oil market, prices closed higher after zigzagging on mixed views about the prospect of war in the Mideast.
Crude for December delivery on the New York Mercantile Exchange closed up 69 cents at $35.23 a barrel after fluctuating from $33.40 to $35.45.
A statement by President Bush that he has “had it” with Iraqi brutality against Americans was viewed as a bullish factor for oil.
The gold and silver markets ignored the oil rally and closed lower on New York’s Commodity Exchange. Gold finished 40 cents lower across the board, with December at $381.30 an ounce; silver was 6.3 to 6.5 cents lower with November at $4.15 an ounce. Platinum, however, added $1.40 across the board, with January at $438.40 an ounce.
