STOCKS : Dow Skids 35.15; Fears About Economy Cited
Stock prices fell sharply Tuesday as uncertainty in the Middle East and worries over the weak state of the economy prompted investors to take profits before the Thanksgiving holiday.
The Dow Jones industrial index lost 35.15 points, or 1.4%, to end at 2,530.20.
In the broader market, declining issues outnumbered gainers by about two to one in nationwide trading of New York Stock Exchange-listed stocks, with 511 up, 1,043 down and 450 unchanged.
Big Board volume was an active 161.17 million shares, up from 140.95 million on Monday. Through Monday, the 30-share Dow index had risen 7.8% from its 1990 low of 2,365.10, hit last month.
Traders decided to take profits while they could as the standoff in the Persian Gulf drags on.
“The market’s going to drift as we enter the holiday period,” one analyst said, referring to Thursday’s Thanksgiving Day holiday. “There’s no conviction out there.”
Some traders were discouraged by uncertainty over whether the Federal Reserve will move to lower interest rates again in the near future.
Recession worries were rekindled Tuesday by word of a 6% fall in October housing starts.
Analysts also blamed declines in some leading blue chips for dragging down the entire market.
“Boeing is the main culprit,” said Edward Laux, senior vice president at Kidder, Peabody & Co. “That’s 10 points in the Dow by itself, and it had been one of the better performers.”
Shares of the aerospace giant tumbled 4 3/4 to 42 1/2 after Goldman Sachs & Co. removed it from its recommended list.
Oppenheimer & Co.’s Michael Metz said renewed worry about financial service stocks, including banks, insurers and mortgage firms, further weighed on the market. “People are also lightening up ahead of a long holiday,” he said.
Tuesday’s fall--the sharpest since the Dow shed 44 points Nov. 7--came despite a sharp drop in oil prices and a rise in Treasury bonds, which tend to support Wall Street.
But Gene Jay Seagle, Gruntal & Co.’s director of technical research, said the tumble was not surprising. “We’ve moved about 200 points recently,” he said. “Some pullback was in order.”
Among the market highlights:
* Weak blue chips included IBM, down 1 3/8 to 113 3/8; General Electric, off 2 1/8 to 53 1/4; Philip Morris, off 3/8 to 48 5/8, and General Motors, off 5/8 to 38 1/8.
* HomeFed fell 1 7/8 to 5 1/2. Merrill Lynch lowered its rating after the firm forecast a rise in problem loans. Other California banks were also dragged lower. First Interstate lost 1 3/4 to 20, Wells Fargo fell 3 1/4 to 53 1/4 and Security Pacific fell 1 1/4 to 21 3/4.
* MCI Communications dropped 2 7/8 to 19 after First Boston issued negative comments about the company, traders said.
* Ford Motor Co. dipped 5/8 to 27. Wertheim Schroder reiterated a sell rating, saying problems in its key auto and financial units increase the likelihood of a dividend cut.
* Eli Lilly’s stock fell 2 3/8 to 66. Analysts said that on an adjusted basis, new prescriptions of the company’s Prozac anti-depressant drug were down 7.6% in October.
In London, stock prices rallied sharply, buoyed by a belief that Prime Minister Margaret Thatcher would defeat challenger Michael Heseltine in the leadership contest of Britain’s ruling Conservative Party. The financial Times 100-share index closed 19.3 points higher at 2,115.2.
Prices on the Tokyo Stock Exchange closed lower in one of the slowest trading sessions of the year. The key Nikkei average of 225 selected issues fell 312.68 points to close at 23,205.48. It gained 346.53 points Monday.
German shares ended little changed from Monday’s levels in thin trading. The 30-share DAX index ended just 0.17 points lower at 1,467.30.
CREDIT Bond Prices Rise as Commodities Drop Bond prices posted a modest increase as traders viewed a dip in commodity prices as a sign of lower inflation.
The Treasury’s bellwether 30-year bond rose 9/16 point, or $5.63 per $1,000 in face amount. Its yield, which declines when prices rise, eased to 8.46% from 8.51% late Monday.
Traders were buoyed by a drop in the Commodity Research Bureau futures price index to its lowest level since October, 1989. The index measures the price of commodities from cocoa to wheat.
In addition, the January contract for crude oil was off $1.81 to $28.91 on the New York Mercantile Exchange.
Traders viewed these price drops positively because they seemed to take a bite out of inflation, which can erode the value of bonds.
Also fueling the credit markets was the government housing starts report. Traders took this grim economic sign as more evidence to prod the Federal Reserve into lowering interest rates to stimulate economic growth. The credit markets view lower interest rates as favorable because they generally boost bond prices.
The federal funds rate, the interest on overnight loans between banks, traded at 7.50%, down from 7.563% late Monday.
CURRENCY Dollar Up on News of Thatcher Vote The dollar ended mostly firmer, while the British pound sank because of Prime Minister Thatcher’s failure to win the first ballot for her Conservative Party’s leadership.
In New York, the pound fell to $1.9660, from Monday’s $1.9750. Against the German mark, the dollar closed at 1.4760 marks, up from 1.4745 marks on Monday. The dollar edged up to 128.85 yen at late afternoon, up from 128.75 yen late Monday.
The British pound was hammered down after ballot results showed that Thatcher received 204 votes to Michael Heseltine’s 152 in the race for Conservative Party leader. Since Thatcher failed to win by a 56-vote margin, a second ballot will be held next Tuesday, requiring only a simple majority for victory.
Other late dollar rates in New York, compared to late Monday’s rates, included: 1.2450 Swiss francs, unchanged; 4.9760 French francs, up from 4.9645; 1,109 Italian lire, up from 1,108, and 1.1593 Canadian dollars, down from 1.1634.
COMMODITIES Grain Futures Fall as Rumor Fizzles Grain traders sent prices into a skid at the Chicago Board of Trade, expressing their disappointment over the lack of any food aid plan for the Soviet Union.
Wheat lost 7 to 8 cents a bushel and hit contract lows across the board.
On other markets, livestock, meat, petroleum and precious metals futures were all losers.
During the two previous sessions at the Board of Trade, traders had run grain and soybean prices up on rumors that a huge grain deal was in the works.
“There are some pretty dire stories coming out of Russia about the lack of vegetable oil, flour, potatoes, the lack of bread, even the lack of salt,” said John Frazier, agricultural director in Chicago for Gerald Inc.
“It was very, very much expected” that an announcement would come out of the meeting Monday between President Bush and Soviet leader Mikhail S. Gorbachev, he said.
There may be an agreement yet, Frazier said, but the disappointment was too great for the traders who had bought on the rumors.
Wheat settled 6 to 8.50 cents lower, with the December contract at $2.4525 a bushel; corn was 3 to 5,75 cents lower, with December at $2.2175 a bushel; oats were 2 to 3.25 cents lower, with December at $1.0825 a bushel, and soybeans were 6.50 to 12 cents lower, with November at $5.57 a bushel.
Market Roundup, D6
