STOCKS : Interest Rate Hopes Boost Dow by 24.25
Stocks closed higher Wednesday as hopes mounted that interest rates are headed lower and as oil prices fell on the belief war isn’t imminent in the Persian Gulf.
The Dow Jones industrial index rose 24.25, or nearly 1%, to end at 2,559.65. However, the Dow had been up as much as 38 points before fading.
In the broader market, advancing issues outnumbered declines by almost 2 to 1 on the New York Stock Exchange, with 1,001 up, 521 down and 468 unchanged. But some traders warned that a significant part of the rally came from “short-covering” rather than true bargain hunting.
Big Board volume totaled 179.31 million shares, up from 160.24 million Tuesday.
Investors took heart from a drop of almost $2 per barrel in oil prices and expectations that the Federal Reserve will soon push interest rates lower to stimulate the sluggish economy.
Oil tumbled on news that President Bush had assured Congress that his new troop buildup in the Persian Gulf did not mean war would erupt soon.
Meanwhile, the Commerce Department said retail sales rose a scant 0.1% in October, as consumers held off spending fearing that recession is about to bite. “All these October figures confirm that the economy fell off a cliff as the fourth quarter began,” said Prudential-Bache analyst Larry Wachtel.
Even so, the hoped-for easing by the Fed did not materialize Wednesday. That may have hurt stocks late in the session.
Traders also said many short-sellers--who had bet that stock prices were heading lower--rushed into the market to cover positions as the rally continued. Such buying can create sudden surges, but they tend not to last.
Analysts also said computerized program trading accelerated Wednesday’s advance. There were reports of a $1-billion shift from bonds to stocks by a major investor via computer program trades.
“We certainly got some buy programs operating,” said Bradley Turner, chairman of McDonald & Co.’s investment policy committee.
Among the market highlights:
* Financial stocks jumped again, powered by buying from short-sellers covering their positions. Wells Fargo rose 2 1/8 to 53 5/8, Security Pacific jumped 1 3/8 to 23 3/8, First Interstate rose 1 3/4 to 21 5/8 and Citicorp gained 5/8 to 14. Among S&Ls;, Coast Savings leaped 3/4 to 4, HomeFed jumped 3/4 to 7 3/8 and Downey added 3/8 to 14 3/8.
* Retail stocks also rebounded, helped by short-covering. May rose 1 3/8 to 41 7/8, Penney added 1 3/4 to 43 5/8, Circuit City gained 1 1/8 to 11 3/4 and Vons rose 5/8 to 19 3/8.
* Tech stocks were strong, led by IBM, up 1 1/2 to 113 1/2 as Pru-Bache upgraded its rating to “buy” from “hold,” citing strong mainframe demand and personal computer sales. Elsewhere, Digital Equipment rose 1 3/8 to 52 1/4, Apple Computer gained 1 to 37 and NCR rose 1 1/2 to 56 5/8.
Among smaller Southland tech stocks, Teradata jumped 1 to 8 1/4, International Rectifier rose 7/8 to 7 1/8 and AST Research gained 1/2 to 25 3/8. Trimedyne zoomed 3/4 to 4, continuing to rise on FDA approval of the firm’s cold laser instrument for blood-clot removal. Optical Radiation fell 3/4 to 25 3/4 after reporting quarterly earnings of 44 cents a share, versus 42 cents a year earlier.
* Some beaten-down industrial stocks rallied. Dow Chemical was up 2 1/4 to 45 1/4, Tenneco gained 1 3/8 to 46 5/8, Grace added 1 3/8 to 22 3/8 and Ford rose 1 1/8 to 29 1/2.
* MCA soared 3 to 65 1/2 on optimism about its merger talks with Matsushita.
* Schering-Plough dropped 2 1/8 to 43 3/4. The company told analysts that regulatory review of its Leucomax treatment had been delayed.
Shares closed lower in London as investors assessed the news that Prime Minister Margaret Thatcher is being challenged as leader of the governing Conservative Party. The Financial Times 100-share index fell 10, or 0.5%, to close at 2,046.0.
Shares opened sharply lower in Germany but rebounded on short-covering to finish mixed to slightly firmer. The 30-share DAX index closed 3.32 points higher at 1,406.23.
In Tokyo, stocks closed weaker in a day of thin trading. The key 225-share Nikkei index closed down 36.23 at 23,937.44. Shortly after midday today, the Nikkei was off another 286 points.
CREDIT: Bond Prices Rise as Oil Declines
Bond prices posted some small gains as inflation fears abated along with a drop in oil prices.
The government’s key 30-year bond rose 3/16 point, or $1.88 for every $1,000 in face value. Its yield slipped to 8.51% from 8.53% late Tuesday.
Trading was described as light, however, as many dealers were awaiting a possible move by the Federal Reserve to encourage lower interest rates. The central bank is expected to ease rates to help stimulate an economy that many consider to be in recession. But the Fed hasn’t moved.
Ray Stone, a partner in Stone & McCarthy Research Associates in Princeton, N.J., said the bond price rally reflected the decline in oil futures prices. Also, a widely followed index of commodity futures prices sank to its lowest level in more than a year. That suggested waning inflation.
The federal funds rate was quoted at 10% late in the day, up from 7.75% Tuesday. But that key rate often fluctuates wildly on Wednesdays for technical reasons.
CURRENCY: Dollar Hits New Low Against the Mark
The dollar touched new intraday lows in a broad decline against foreign currencies, dragged down by continued expectations that the Federal Reserve may move soon to cut interest rates.
The dollar fell to a record low 1.470 German marks in New York before settling at 1.472, down from Tuesday’s 1.478.
The only major currency the dollar showed strength against was the British pound, which sank amid a potential political shake-up in the United Kingdom. In New York, it cost $1.960 to buy one pound, less expensive than Tuesday’s $1.9635.
Against the Japanese yen, the dollar fell to 129.09 from 129.65 Tuesday.
COMMODITIES: Plunge in Oil Pulls Gold Lower
In the absence of any supportive war news from the Persian Gulf, crude oil plummeted nearly $2 a barrel Wednesday after an industry report showed that U.S. crude stocks rose for the second-consecutive week.
The benchmark West Texas light sweet crude for December delivery ended the day down $1.96 to $31.16 a barrel on the New York Mercantile Exchange after trading as low as $30.90.
A weekly American Petroleum Institute inventory report was expected to show a 1-million- to 3-million-barrel drop in U.S. crude oil supplies, but the API survey instead showed a rise of 800,000 barrels, an increase for the second straight week. That raised fears of a growing oil glut.
Meanwhile, prices of gold futures tumbled on New York’s Commodity Exchange in a session marked by growing recession fears and a lack of support from oil.
Gold settled $8.70 to $8.50 lower, with December at $380.40 an ounce.
Gold began falling in early trading amid profit taking from Tuesday’s gains and closed sharply lower after trading was stopped several times by an automatically triggered mechanism activated when prices go below a set figure.
Silver and platinum prices followed gold. Silver settled 4.3 to 3.4 cents lower, with December at $4.17 an ounce. Platinum settled $5.90 lower across the board, with January at $413.90.
