Blue chip stocks rose sharply Wednesday as expectations of lower interest rates once again overwhelmed investors’ many worries.
The Dow Jones industrial index jumped 36.14 points, or 1.4%, to 2,622.28. Advancing issues outnumbered decliners by about 5 to 3 in nationwide trading of New York Stock Exchange-listed stocks, with 952 up, 594 down and 507 unchanged.
Big Board volume swelled to 182.27 million shares, up from 145.33 million Tuesday.
Smaller stocks, however, lagged. They had led the recent rally, but have weakened in the last few days. The NASDAQ over-the-counter composite index inched up 0.7%, or 2.43 points, to 370.42.
The market got a boost after an Iraqi diplomat was quoted as saying his country would withdraw from Kuwait immediately if the U.S. publicly backed U.N. resolutions on the Middle East. That helped send oil prices plunging.
Later news reports focused on the dispute between the United States and Iraq about a date for talks on the crisis. Still, “peace seems to be more probable than war,” said Jeffrey Kaminsky, trader at Mabon Nugent.
Expectations of a cut in the Federal Reserve’s discount rate continued to boost investor optimism about stocks’ attractiveness, traders say. As rates drop and bonds become less appealing, stocks become more interesting to investors.
But many analysts still caution that corporate earnings could be very weak in the current quarter. That’s one reason why Wednesday’s rally was led by drug and food stocks: they are expected to show consistent earnings growth.
George Pirrone, senior vice president at Dreyfus Corp., said the market could face resistance as the Dow nears 2,650. The Dow rallied to that level in late August after a steep plunge, but couldn’t hold.
The Dow has gained more than 250 points, or 11%, since hitting a 1990 low of 2,365.10 just two months ago.
* Among food and drug winners, Ralston rose 2 1/8 to 100 1/4, Quaker Oats added 1 1/8 to 51 5/8, General Mills jumped 2 5/8 to 49 1/4, Merck leaped 2 1/4 to 88 1/2, Pfizer was up 1 1/8 to 80 5/8 and American Home rose 1 1/8 to 52 3/4.
But Thousand Oaks-based biotech firm Amgen slumped 3 1/8 to 54 1/2. Amgen has been one of the market’s hottest stocks recently.
* Investors still seem wary about many industrial stocks, but some were big winners Wednesday. Eaton rose 1 5/8 to 50 1/2, Phelps Dodge gained 1 5/8 to 54 1/8 and Caterpillar added 1 1/8 to 46 1/4. But Ford lost 3/8 to 27 1/4, after trading as low as 26, and GM slipped 3/8 to 35 1/4 after trading as low as 34 1/2. Auto makers predicted a gloomy 1991.
* Oil stocks were weak across the board, led by Occidental, off 1 7/8 to 20 3/4. Oxy gave up all of its gain from Tuesday, when traders reacted to the death of the firm’s chairman, Armand Hammer. Speculation about a breakup of Oxy subsided Wednesday. But beef packer IBP added 1/2 to 19 1/2. Oxy owns 51% of IBP, a stake that could be sold, some traders believe. IBP jumped $2.625 on Tuesday.
* Hilton Hotels jumped 6 5/8 to 42 1/8 on rumors an unspecified group of Japanese investors will offer $75 a share to acquire the company. Hilton said it doesn’t know of any takeover offer.
* Among other Southland issues, aerospace and biotech firm Whittaker rose 1 1/4 to 10 1/4 after posting strong earnings. Canoga Park-based New Image Industries slipped 1/8 to 2 after saying it agreed to spend $1 million in cash and 250,000 shares to buy a private firm that makes an intra-oral camera for use in dentistry.
In overseas trading, German shares jumped back over the psychological 1,500 points barrier on the 30-share DAX index, as blue chip buying reversed losses made Monday and Tuesday. The DAX index ended 24.56 points or 1.7% higher at 1,517.24.
Share prices ended lower on London’s stock market. The Financial Times 100-share index was off 8.9 points at 2,156.9 at the close.
In Tokyo, stocks closed higher after a day of moderate volatility. The 225-share Nikkei average clocked up its sixth-straight day of gains with a rise of 42.44 points to 23,999.41. Early today, the Nikkei gained 189.81 to 24,189.22.
Bonds Prices Flat After Seesaw Session Bond prices seesawed, ending mostly flat due to technical factors in the market, traders said.
The Treasury’s bellwether 30-year bond slipped 1/16 point, or 63 cents per $1,000 in face amount, by closing. Its yield was 8.07%, unchanged from late Tuesday.
Traders are looking for economic reports that will persuade the Federal Reserve to cut its key discount rate, or to further ease the federal funds rate, the rate banks charge each other for overnight loans.
The federal funds rate traded at 6.5% late Wednesday, compared to 6.875% late Tuesday. The Fed’s new target for the rate is believed to be around 7.25%, but the rate often fluctuates wildly on Wednesdays, which are settlement dates on which banks must report their reserves to federal authorities.
Robert Chandross, chief economist for Lloyds Bank PLC, said the Fed has “had a very hard time estimating reserves in the last few days, and that’s why the funds rate has been all over the place.”
Dollar Falls in Day of Thin Trading The dollar closed mostly lower in thin trading, a victim of the renewed expectations that interest rates are headed down.
Lower rates make dollar-denominated investments less attractive and deflate interest in buying the currency.
The dollar closed at 1.475 German marks, versus 1.478 Tuesday.
Against the Japanese yen, the dollar closed at 131.45, compared to 132.40.
Oil Prices Plunge on OPEC Comment Oil tumbled below $26 a barrel to the lowest level since Aug. 3--the day after Iraq invaded Kuwait.
The oil market was pressured Wednesday by OPEC President Sadek Boussena’s comment that the world will be “awash with oil” if a peaceful solution is found to the Persian Gulf crisis.
“No one is talking about the war picture at the moment,” a trader said.
Oil for January delivery on the New York Mercantile Exchange plummeted $1.06 to close at $25.35 a barrel. The last time oil closed at that level was Aug. 3, the day after Iraq took over Kuwait. Oil now is $15.80 a barrel below its Persian Gulf crisis high of $41.15, which was set Oct. 10.
Elsewhere, grain and soybean futures closed mostly higher Wednesday on the Chicago Board of Trade in anticipation of the granting of export credits to the Soviet Union.
After the close of trading, President Bush announced a waiver of trade restrictions on the Soviets and granted credit guarantees.
Among precious metals, gold was 70 cents to $1.80 higher, with February at $373.50 an ounce; silver, however, tumbled 4.1 cents to 4.9 cents, with December at $4.03 an ounce.