STOCKS : Stocks Eke Out Gain of 5.20 as a Key Rate Dips
Stocks inched higher Friday, unable to mount a convincing rally despite a sharp drop in bond yields after the Federal Reserve moved to lower interest rates.
The Dow Jones industrial index closed 5.20 points higher at 2,550.25, stretching its gain for the week to 61.64 points. In the broader market, advancing issues slightly outnumbered declines in nationwide trading of New York Stock Exchange-listed stocks, with 766 up, 725 down and 517 unchanged.
New York Stock Exchange volume was 165.44 million shares, versus 151.37 million Thursday.
Responding to fresh reports pointing to a severe weakening in the economy, the Fed finally eased its grip on credit. Also, crude oil for December delivery fell $1.34 to $29.78 a barrel amid signs that Mideast tensions might be easing.
But in typical reverse-psychology fashion, the stock market’s reaction to the long-awaited Fed move was to question whether it will be enough to help the sinking economy. “The tendency for the Fed is to react too little, too late,” noted Jack Barbanel, president of First Global Asset Management.
It didn’t help that Friday’s government reports of moderating inflation but weakness in imports and exports painted a picture of an extremely sluggish economy.
Sid Dorr, trader at Charles Schwab, said, “There is a better feeling about the market. But I don’t think too many people have real conviction.” Broader indexes were weaker than the Dow Friday. And in the over-the-counter market, the NASDAQ composite index dropped 1%, to 350.85.
Among the market highlights:
* MCI plummeted 7 3/8 to 22 5/8 in a wild reaction to its Thursday restructuring news. MCI said intense competition and a weak economy could adversely affect its results for several quarters.
The shock effects of MCI’s drop spread to other long-distance telephone issues. AT&T; fell 1 1/8 to 32, United Telecomm lost 2 7/8 to 22 1/2 and GTE dropped 5/8 to 27 5/8.
* Among other stock bombs, Hologic plunged 6 1/4 to 8 3/4 after the X-ray system developer projected a short-term sales slump. And Adobe Systems skidded 3 5/8 to 26 on worries about its relationship with Hewlett-Packard, whose earnings are slumping.
* Among banks, Ameritrust of Cleveland lost 2 3/4 to 9 after it forecast a rise in nonperforming assets in the current quarter, and said it will cut its dividend. But other banks held firm, including Chase, up 3/8 to 11 1/8, and Wells Fargo, up 1/8 to 55 5/8.
* Auto stocks fell as Merrill Lynch downgraded them. GM lost 7/8 to 38 3/8; Ford slipped 3/8 to 27 7/8.
* GE rose 3/8 to 55 3/8. It raised its quarterly dividend from 47 cents a share to 51 cents.
* MCA fell 3 to 64 7/8 following a Japanese news agency report of possible complications in its pending buyout by Matsushita. Movie stocks in general were weak. Carolco dropped 5/8 to 5 1/8 and Live Entertainment gave up 3/4 to 10 1/4.
Overseas, Tokyo stocks closed down but off their lows in relatively thin trading. The Nikkei average lost 315.85 points to 23,171.63.
Shares closed slightly firmer in London. The Financial Times 100-share-index closed at 2,068, up 8.0 points on the day, 38.7 on the week.
German shares ended just above an important level on the 30-share DAX index. The DAX rose 4.49 points to 1,425.68, just above the 1,420 support level.
CREDIT
Bonds Take Off on Fed Action Hopes
Bond prices jumped as the Federal Reserve at long last eased credit.
The Treasury’s bellwether 30-year bond jumped 13/16 point, or $8.13 per $1,000 in face amount. Its yield, which falls when prices rise, fell to 8.45% from 8.53% Thursday. Friday’s yield was the lowest since before the Iraq-Kuwait crisis began in early August.
Traders said they viewed a drop Friday in the federal funds rate as a clear indication that the Fed has moved to relax credit policy. The federal funds rate is the rate banks charge each other on overnight loans, and is closely watched to determine a change in policy.
The rate late Friday was 7.563%, down from 8% late Thursday.
A lowering of interest rates is viewed by credit market participants as a positive development because it generally increases the value of older bonds.
Carol A. Stone, economist at Nomura Securities, said the final test of whether the Fed has moved to ease interest rates will be if the federal funds rate remains around the 7.50% level after this weekend. The Fed’s target had been 7.75%.
“The timing of the easing is important. It puts additional pressure on banks to reduce their prime lending rate” during the crucial holiday shopping season, said Steven R. Ricchiuto, economist at Barclays de Zoete Wedd.
CURRENCY
Dollar Tumbles Against the Mark
The dollar fell to a record low against the German mark Friday, battered by the Federal Reserve’s move to lower interest rates.
Lower rates tend to make the dollar less attractive to investors compared with other currencies.
In New York the dollar settled at a post-war low of 1.470 marks, down from 1.475 Thursday.
Currency trading was active following the Labor Department’s consumer price report. John McCarthy, dealer at Amsterdam Rotterdam Bank, said that because inflationary pressures seem to be stabilizing, the Fed has more room to maneuver rates downward.
The dollar settled at 129.50 Japanese yen versus Thursday’s 129.69.
COMMODITIES
Platinum Prices Up $6 on High Demand
Platinum futures prices gained Friday on New York’s Commodity Exchange as Japan logged substantial orders for the commodity.
Platinum settled $5.70 to $6 higher, with the contract for delivery in January at $421.70 an ounce.
Despite a report released earlier this week indicating a glut of the commodity, prices gained steadily throughout the day on word that Japan is placing more orders for use in jewelry and auto parts.
Gold settled $1.20 to 20 cents lower, with December at $379.80 an ounce. Silver settled 3.3 to 3.5 cents higher, with December at $4.15.
Market Roundup, D6
FED MOVES TO LOWER RATES
The Federal Reserve Board, seeking to bolster the economy, signaled its intent to nudge interest rates down. A1
