STOCKS : Economic Data Spurs Buying; Dow Up 12.62
Stock prices chalked up a moderate gain Thursday as traders studied accumulating evidence of weakness in the economy.
The Dow Jones index of 30 industrials climbed 12.62 to 2,454.95.
In the broader market, advancing issues outnumbered declines by nearly 3 to 2 in nationwide trading of New York Stock Exchange-listed stocks, with 896 up, 618 down and 487 unchanged. Big Board volume edged up to 159.27 million shares, against 156.06 million Wednesday.
A collection of reports from the 12 district banks in the Federal Reserve System painted a picture of slumping business conditions in most sectors of the country.
Today, monthly data from the Labor Department is expected to show a decline in payroll employment and an increase in the unemployment rate, probably to 5.8% in October from 5.7% the month before.
Separately, the Commerce Department is to report on the index of leading economic indicators for September.
The investment firm of Smith Barney, Harris Upham & Co. estimates that the index will show a decline of 0.8%, after falling 1.2% in August.
Interest rates declined in the credit markets in response to these developments and prospects.
But stock traders took a warier view, faced with increasing concern about the outlook for economic growth and corporate profits.
The signs of a weak economy came in the form of a decline in the October purchasing managers’ index to 43.4% from 44.4% and a grim report from the Fed itself.
Stable oil prices also encouraged buying, analysts said.
Among the market highlights:
* Toys R Us fell 3/8 to 21 7/8. Analysts at Kidder, Peabody & Co. and at Prudential-Bache lowered 1990 and 1991 earnings estimates on the retailer. The analysts cited disappointing third-quarter sales and concerns about the Christmas season outlook.
* Humana Inc. slipped 1 1/4 to 40 1/2 after a story on the company’s Medicare program appeared in the Ft. Lauderdale Sun-Sentinel.
* Ralston Purina’s shares were off 4 7/8 to 94 1/8. The food company reported fourth-quarter earnings slightly below expectations.
* Manufacturers Hanover advanced 1 1/4 to 17. The bank’s chief financial officer plans to recommend to directors that the company pay its regular dividend.
Some other financial service stocks also posted gains. Citicorp was up 5/8 to 11 7/8; J.P. Morgan advanced 1 3/8 to 38.
In the insurance sector, Unum Corp. added 1 5/8 to 38 1/8, Marsh & McClennan gained 1 7/8 to 68 1/8 and General Re rose 2 7/8 to 78 1/2 after reporting a higher third-quarter profit.
* Samna Corp. jumped 7 3/8 to 18 1/4 after Lotus Development said it would buy the company for $18.84 a share. Lotus rose 1/4 to 17 1/2.
* Gainers among the blue chips included International Business Machines, up 1 3/4 at 107 1/4; Philip Morris, up 3/4 at 47 7/8; General Electric, up 3/8 at 52 3/8, and Procter & Gamble, up 3/8 at 79.
* General Motors rose 1/8 to 36 7/8 in active trading. After a $2.1-billion charge GM announced Wednesday for plant closings, some analysts said the company might have improved its chances for better earnings performance.
A weaker yen and rumors of an impending war in the Middle East sent Japanese stock prices plunging. Turnover was thin. Gloomy chart factors also undermined prices. The 225-share Nikkei average fell 898.94, or 3.57%, to close at 24,295.16.
In Frankfurt, share prices closed lower, then were marked down further in post-market trading when the Bundesbank announced that it was raising its Lombard emergency funding rate by 50 basis points to 8.5%. The 30-share DAX index ended 16.56 points lower at 1,417.26.
Shares closed lower in London, hit by an official denial that any British rate cut was imminent. The Financial Times 100-share index ended 22.3 points down at 2,028.
CREDIT: Gloomy Reports Boost Bond Prices Bond prices strengthened, lifted by the gloomy unemployment figures and the other signs of economic duress.
The Treasury’s bellwether 30-year bond rose 11/16 point, or $6.88 per $1,000 in face amount. Its yield dropped to 8.68% from 8.75% late Wednesday.
Bond prices tend to strengthen on bad news because investors generally view fixed-income securities, especially government securities, as a safe haven during unstable economic times.
The federal funds rate, the interest on overnight loans between banks, traded at 7.938%, up from 7.813% late Wednesday.
CURRENCY: Dollar Weaker After German Rate Hike The dollar fell against all major currencies but the Japanese yen amid further signs of a weakening U.S. economy and rising interest rates overseas.
The dollar was pushed lower in European trading after the announcement by Germany’s central bank that it was raising the Lombard rate. Traders sold the U.S. currency to buy marks.
Although dealers knew that a German rate hike was inevitable to finance the cost of reunification, the timing of the move caught the markets by surprise, said Bob Morrissey, senior trader at the Bank of Boston’s office here.
The dollar closed at 1.5035 German marks in New York, down from Wednesday’s finish of 1.5185 marks.
When trading shifted to the United States, the already weakened dollar was hit again by a report showing a sharp rise in initial jobless claims and a separate report from the nation’s purchasing managers indicating that the manufacturing sector weakened again last month.
Further, the Commerce Department said construction spending sank 2.8% in September, its sharpest plunge in eight years.
Because of the bearish indicators, traders expect the Federal Reserve to lower interest rates. Such a move would erode the value of dollar-denominated securities, and as interest rates rise overseas, there is less incentive for foreign investors to put their money in the United States.
The dollar rose against the Japanese yen in mostly technical trading. In New York the dollar settled at 130.56 Japanese yen, up from 130.11 yen on Wednesday.
The British pound cost $1.9450, more expensive than Wednesday’s $1.9430.
COMMODITIES: Technical Factors Aid Silver Prices Prices of silver futures rose sharply on New York’s Commodity Exchange, extending a recovery from 15-year lows, in a rally fueled by technical factors and speculation that interest rates may fall soon.
On other commodity markets, gold futures rose; platinum futures fell; crude oil futures retreated; grains and soybeans were mostly higher; cattle futures fell, and pork futures were mixed.
Silver futures settled 7.6 to 7.9 cents higher, with the contract for delivery in December at $4.256 an ounce.
Gold ended $1.60 to $2.10 higher on the Commodity Exchange, with December at $383.10 an ounce; platinum futures were $2.70 to $2.90 lower on the New York Mercantile Exchange, with January at $435.70 an ounce.
