Stocks began the new year on a gloomy note Wednesday, as Mideast jitters and dismal economic figures kept buyers sidelined.
A half-point cut in the prime lending rate by major banks failed to rouse investors’ interest, even though bond yields plunged.
The Dow Jones industrial index lost 23.02 points to 2,610.64.
Volume on the New York Stock Exchange was 126.3 million shares, up from 114.1 million in the previous session Monday. Traders said the thin volume exaggerated share price movements.
Losing Big Board issues outnumbered gainers 869 to 709.
Evidence of a deepening slide in the U.S. economy continued to pile up. The National Assn. of Purchasing Management said its index dropped sharply in December, while the White House conceded that the economy is in a recession.
“The purchasing managers’ report showed a decline for the sixth consecutive month,” said Peter Davies, a vice president at Nomura Securities. “That has people focusing again on a recession.”
Many investors now apparently fear that fourth-quarter corporate profit reports, due out in a few weeks, could be even worse than expected. That could spark another round of selling, if Mideast war doesn’t start a market slide beforehand, experts say.
Among the market highlights:
* Hardest hit were some of the market’s leading stocks in 1990--mostly consumer issues--suggesting that investors were growing wary of stocks across the board. Philip Morris lost 7/8 to 50 7/8, Coca-Cola dropped 1 1/4 to 45 1/4, General Mills gave up 1 3/4 to 47 1/4 and Gillette fell 2 1/2 to 60 1/4.
* Ralston Purina tumbled 4 3/8 to 98 1/8. Goldman Sachs reduced its rating on the company, citing expectations of slower cash flow in 1991. Abbott Labs fell 1 3/4 to 43 1/4. Donaldson Lufkin & Jenrette cut its rating on the stock, saying it had become fully valued.
* Paramount Communications jumped 1 1/2 to 42 3/8 in heavy trading, on rumors that its film production unit might be sold to Japanese interests. Paramount immediately denied the report, which ran on Japan’s Nikkei wire service. A Paramount spokesman termed it “false and irresponsible.” Nikkei, quoting unidentified sources, reported that Pioneer Electronic, Toshiba and Hitachi were among the possible buyers.
* Pinelands Inc., the WWOR-TV spinoff from MCA Inc., jumped 1 7/8 to 19 1/2 in when-issued trading, suggesting that investors see major potential in the super-station. The company on Monday said it expects 1990 revenue to match or exceed 1989’s, despite the weak economy.
* Toys R Us rose 5/8 to 23 1/8 despite reporting dismal Christmas sales. Investors apparently expected worse.
* Student Loan Marketing rose 1 1/2 to 47 3/4. It agreed to buy Chase Manhattan’s $1.2 billion in insured student loans. Elsewhere, other financial stocks came under renewed pressure. CalFed slumped 1/2 to 3 7/8, Glenfed dropped 3/8 to 6 and Wells Fargo lost 1 3/8 to 56 1/2.
* Southland home builder Kaufman & Broad rose 3/4 to 10. The firm said it increased its revolving credit line to $265 million from $200 million, an indication that lenders still view the company as a strong credit. But another builder, Del Webb, eased 1/4 to 6. The firm, a builder of retirement homes, announced that it would enter the conventional single-family housing market in Phoenix, despite that market’s overbuilt status.
In London, the Financial Times-Stock Exchange 100 index opened the new year with a loss of 15.2 points, falling to 2,128.3.
In Frankfurt, German share prices tumbled 2.3% to their lowest close in three months. The 30-share DAX index slid 32.13 points to 1,366.10. The index is down 10% just in the last eight sessions.
In Tokyo, the market was closed for an extended holiday.
CREDIT Bond Prices Leap on New Signs of Slump Government bond prices rose sharply as oil prices dropped and signs of a recession increased, all good news for the credit markets.
The Treasury’s bellwether 30-year bond rose 1 5/32 point, or $11.56 per $1,000 in face amount. Its yield, which falls when prices rise, tumbled to 8.14% from 8.24% late Monday.
The bond rally extended across all maturities, as investors rushed to lock in yields, anticipating lower rates ahead.
The federal funds rate, the overnight loan rate among banks and a closely followed indicator of the Federal Reserve’s activities, rose to 11% in late trading from an unusually low 2% late Monday. The rate often exhibits sharp swings on Wednesdays, which are settlement dates on which banks must report their reserves to federal authorities.
CURRENCY Dollar Declines in Cautious Trading Grim economic news sent the dollar stumbling in foreign exchange transactions, but traders’ worries about war in the Persian Gulf helped minimize the drop.
“If it wasn’t for the Middle East, the dollar would be much lower now,” said Thomas J. Palladino, a currency trader for Oesterreichische Landerbank in New York. The dollar remains a safe-haven in times of international turmoil.
The dollar fell to a closing 134.30 Japanese yen in New York from Monday’s 135.30. Against the German mark, the dollar fell to 1.487 from 1.488 on Monday.
COMMODITIES Gold Heads Lower on Mideast Reports Reports that Secretary of State James A. Baker III could meet soon with Iraqi President Saddam Hussein caused gold prices to drop on New York’s Commodity Exchange.
The February crude oil contract fell $1.95 to $26.49 a barrel on the New York Mercantile Exchange.
Gold settled $5.10 to $6.30 lower, with the contract for delivery in February at $391.10 an ounce; silver was 7.8 to 8.9 cents lower, with January at $4.11.
Market Roundup, D6