Blue chip stock prices rose slightly in light trading Monday as investors grappled with the prospects for an interest rate cut and mounting signs of a possible recession.
The Dow Jones industrial index rose 6.68 points to close at 2,596.78. Advancing shares barely outpaced losers in the broader market, with 798 up, 774 down and and 490 unchanged on the New York Stock Exchange. Volume on the Big Board was a modest 138.65 million shares, down from Friday’s 164.95 million.
“People are taking an opportunity to survey the investment horizon and to come to some decision of where they go from here,” said Bradley Turner, chairman of McDonald & Co.'s investment policy committee.
Trading was choppy, with stocks buffeted by news about the Persian Gulf crisis and many investors staying on the sidelines amid recession fears.
Iraq’s insistence that it would not relinquish control of Kuwait “had a dampening influence this morning,” said Tom Callahan, executive vice president at Yamaichi International.
Investors also speculated that the Federal Reserve Board would move again soon to lower interest rates.
The possibility of a cut in the Fed’s key discount rate helped some financial stocks.
“Clearly the Fed easing is a good support to the market,” said Robert Caputo, director of research at Swiss Bank Corp. Investment Banking Inc.
Other factors are less clear, he noted. “There’s confusion about whether we’re closer to peace or war,” Caputo said. “The signals are so mixed, the market is having a hard time knowing what to do.”
Turner said the stream of economic data “suggests the economy is indeed slowing and we are, at best, in a mild recession.”
Among market highlights:
* Boeing Co. slipped 5/8 to 44 7/8 after an article in Barron’s raised concern about the aircraft manufacturer’s outlook.
* Security Pacific, which tumbled Friday, rose 1 1/8 to 23 1/8 after it announced a decision to take a large provision against problem loans overseas and disband its merchant bank.
* Elsewhere in the financial sector, Wells Fargo added 1 1/4 to 56 1/4, Citicorp edged up 1/4 to 15, Manufacturers Hanover rose 1 to 24, BankAmerica gained 1/2 to 24 1/2, Federal National Mortgage added 7/8 to 34 3/4 and Household International rose 1 1/8 to 31 1/2.
* HAL Inc. rose 1 1/8 to 10 1/8. It agreed to sell a route authority and a 25% interest in Hawaiian Airlines to Northwest Airlines.
* Community Psychiatric Centers climbed 1 to 27 3/4. The company said patient admissions rose 20.4% in its fourth quarter.
In Tokyo, stocks closed higher on the back of a stronger yen, optimism over developments in the Gulf and lower interest rates in the United States. The Nikkei 225-share index closed up 262.18 points at 23,784.67.
German shares ended a quiet session mixed. The 30-share DAX index fell 8.04 points to 1,504.80.
Share prices ended little changed on London’s Stock Exchange as trading slowed to a trickle. The Financial Times 100-share index was down 0.9 point at 2,182.5.
CREDIT: Bond Prices Rise as Rally Continues
Bond prices staged a moderate advance amid lingering momentum from Friday’s sharp rally and uncertainty over the size of the Federal Reserve’s interest rate easing.
The Treasury’s bellwether 30-year bond rose 19/32 point, or $5.94 per $1,000 in face amount. Its yield, which moves in an opposite direction from its price, was down to 8.13% from 8.18% late Friday.
Traders welcomed strong overnight performances in foreign credit markets, fortified by the steep domestic gains on Friday, when the long-term bond jumped 1 3/4 points--highest in six months.
That jump was largely spurred by indications that the Fed moved to ease the federal funds rate, the interest on overnight loans between banks, by 0.25% to 7.25%.
Lower interest rates generally boost the value of government securities such as bonds and notes.
But on Monday, traders began to speculate that the Fed had actually cut the funds rate by 0.50% to 7% after the rate drifted below that threshold several times during the day.
At Monday’s close the rate traded at 6.75%, down from 7.063% late Friday.
In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds closed at 91 13/16 points, up 3/32 point from Friday’s close. The average yield to maturity was 7.46%, down from 7.47% late Friday.
CURRENCY: Dollar Hangs Tough Against the Mark
The dollar ended little changed after rebounding from a record low against the German mark in European trading.
It closed at 1.4725 marks, compared to 1.4720 at Friday’s close. Earlier, it slumped to the latest in a string of all-time lows, hitting 1.4630 marks in overnight trading.
“Fundamentally, the dollar should be lower,” said Peter Connolly, a manager at Wells Fargo Bank in San Francisco. “After year-end, the dollar might go to 1.43 or 1.42 (marks).”
The dollar closed at 132.15 Japanese yen, up from 130.70 Friday.
COMMODITIES: Gold Futures Erase Half of Recent Drop
Gold futures prices rallied on New York’s Commodity Exchange, erasing almost half of last week’s steep losses in reaction to tough talk from both sides in the Persian Gulf crisis.
On other commodity markets, silver futures edged lower, oil futures rose, livestock and meat futures advanced and grains and soybeans were mostly higher.
Gold futures settled $3.50 to $3.90 higher, with the contract for delivery in December at $374.20 an ounce; silver finished 0.5 cent to 0.9 cent lower, with December at $4.05 an ounce.
Gold’s rally marked a turnaround for the market, which fell a total of $8.60 in the three previous sessions.
Perceptions about the possibility of war in the Middle East dominated gold trading, said precious metals analyst Don Tierney of Fortune Commodities Inc. in New York.
He said prices opened higher in New York following a rally on the London market after the Cable News Network aired an interview with Iraqi Foreign Minister Tariq Aziz saying that Baghdad does not recognize the United Nations’ Jan. 15 deadline for Iraq to withdraw from Kuwait.
Higher energy prices and a weaker dollar also supported gold, Tierney said.
“At one point, we were up $6.50, then some profit-taking came in,” he said.
In energy trading on the New York Mercantile Exchange, light sweet crude oil settled 26 to 35 cents higher, with January at $26.90 a barrel; heating oil finished 0.24 cent lower to 1.80 cents higher, with January at 80.97 cents a gallon.