STOCKS : British Report on Iraq Spurs Dow to Late Gain
Stock prices rallied in the final hour of trading Tuesday after a British television station reported that Iraq might be willing to negotiate a withdrawal from Kuwait.
The news that suggested that the Gulf crisis could be resolved without an armed conflict ignited a market that had sunk gradually for much of the afternoon.
The Dow Jones index of 30 industrials, which was down nearly 30 points with half an hour left in the session, finished with a gain of 14.11 to close at 2,579.70.
In the broader market, advancing issues outnumbered declines in nationwide trading of New York Stock Exchange-listed stocks, with 907 up, 639 down and 457 unchanged. Big Board came to 185.82 million shares, up from 177.07 million Monday.
London-based Sky News reported that Iraq would be willing to withdraw from Kuwait in exchange for certain oil fields and a Western promise not to attack.
The report “touched off a wave of enthusiasm that was certainly something to behold,” said Hugh Johnson, chief investment officer for First Albany Corp.
If the Mideast crisis were resolved peacefully and oil prices returned to a level of about $23 to $25 a barrel, “financial markets would regain much of what they lost” after Iraq invaded Kuwait Aug. 2, said Allen Sinai, chief economist at Boston Co. “It’s potentially very, very bullish.”
But the question also remains: Can a sinking U.S. economy be turned around quickly at this point, or will recession run its course regardless of the Gulf resolution?
Among the market highlights:
* Banking stocks were the most active issues on the Big Board after the Federal Reserve loosened bank reserve requirements in an effort boost lending and ease the credit crunch. Citicorp jumped 1 1/4 to 14 1/4, BankAmerica surged 1 1/2 to 24 1/2, Security Pacific rose 1 3/8 to 22 7/8 and Wells Fargo climbed 3 to 55 1/8. Some financial-related stocks also gained, including Southland homebuilder J.M. Peters, up 7/8 to 2.
* NCR rose 2 1/4 to 83 3/4 on speculation that AT&T; may be forced to raise its $90-a-share offer for the computer maker. AT&T; inched up 1/4 to 30 3/8. Digital Equipment, a potential AT&T; target if the NCR bid fails, rose 1 1/2 to 56.
Among Southland tech stocks, Trimedyne jumped 3/4 to 3 5/8, Micropolis added 3/8 to 8 and MacNeal Schwendler rose 3/8 to 10 3/8.
* Entertainment and media stocks gained. Disney rose 1 1/8 to 102 1/4, McGraw Hill added 2 1/8 to 51 1/2 and Cap Cities jumped 8 1/8 to 428 1/8. Caesars World, up recently on recurring takeover rumors, leaped 1 5/8 to 17.
* California health-care company FHP Intl. lost 1 to 13 1/4, following a consultant’s report that suggested the state should drop the HMO firm, among others.
* Among other losers, Deere fell 1 5/8 to 44 1/2 after the company reported disappointing fourth-quarter earnings and projected weak results for its first quarter. Kodak eased 1 1/2 to 41 3/8. Prudential-Bache cut its rating on the photography giant.
* Toys R Us slipped 1 1/8 to 23 1/4. Two brokerages expressed concerns about the company’s earnings prospects.
German share prices closed lower, giving back most of the gains recorded Monday as the sharp plunge in Tokyo prices brought a modest election rally to a sudden halt. The 30-share DAX index fell 16.24 to 1,446.34.
Share prices also finished lower on London’s Stock Exchange. The Financial Times-Stock Exchange 100-share index fell 16.4 to 2,146.3.
In Tokyo, stocks closed sharply lower, with the Nikkei average ending below 22,000 for the first time since Oct. 1, after heavy selling of the cash indexes emerged in thin trading. The 225-share Nikkei closed down 863.38, or 3.8%, at 21,862.61. But by midday today, the Nikkei had rebounded 246.33 points.
CREDIT Bond Prices Jump on Peace Prospects Bond prices shot up on the report that Iraq offered to withdraw from Kuwait, heating up a market already strengthened by a loosening of credit restrictions by the Federal Reserve.
Prices eased after the afternoon buying spree but closed up from earlier levels. The Treasury’s bellwether 30-year bond closed up 1/2 point, or $5 per $1,000 in face amount. That pushed the yield down to 8.32% from 8.36% late Monday.
Credit market participants said a spurt of buying occurred just after 3:30 p.m. EST when traders heard the Persian Gulf report.
Traders immediately interpreted the report as increasing the potential for a peaceful resolution to the Middle East conflict, which would ease the inflationary threat of rising oil prices.
The bond rally came on top of an earlier rise prompted by news that the Fed cut its bank reserve requirements for some deposits.
Credit market analysts said traders were encouraged by the Fed’s unusual move because it could lead to lower interest rates.
The federal funds rate, the interest on overnight loans between banks, was unchanged at 7.438% from late Tuesday.
CURRENCY Fed’s Reserve Rule Change Hurts Dollar The dollar fell, pressured by news that the Federal Reserve cut bank reserve requirements.
The dollar ended at 1.503 German marks, down sharply from Monday’s 1.513, and at 133.30 Japanese yen, down from Monday’s finish of 134.73.
The Fed’s reserve-cutting move was seen as another indication that the central bank wants U.S. interest rates to fall further. That would mean dollar-denominated securities could be less attractive to foreign investors.
Also, the yen benefited from rising expectations of a gulf settlement. Japan, which is highly dependent on oil imports, has watched the yen slide at every hint of a flare up in the Persian Gulf.
Elsewhere, the British pound rose against the dollar, reaching $1.929 from $1.918 late Monday.
COMMODITIES Iraq News Ignored; Energy Futures Up Prices of energy futures rebounded from steep declines of the past two trading sessions, shrugging off reports that the Kuwaitis were willing to enter into negotiations with Iraq.
On other markets, grains were lower and soybeans higher; precious metals gained, and livestock and pork futures were lower.
Analyst Brian Tagler of Shearson Lehman Bros. said energy futures were stronger on New York’s Mercantile Exchange because of a fire in a Saudi Arabian oil field and nervousness over an upcoming OPEC meeting.
The market sold off at mid-session on news that the Kuwaiti royal family may be willing to hand over two islands in exchange for an Iraqi withdrawal. However, the market later recovered from the losses and moved higher.
“It is an indication that the market is in a bullish stage,” Tagler said.
Light sweet crude settled 95 cents to $1.51 higher, with the contract for delivery in January at $30.66 a barrel.
Meanwhile, gold was $1.80 to $2.30 higher, with December at $378.90 an ounce; silver was 1.3 to 1.4 cents higher, with December at $4.15 an ounce.
Market Roundup, D6
