IMPACT OF THE GULF WAR : Markets Shrug Off Rumors, Bad News; Dow Advances 23.37
A rally kindled by the start of the Persian Gulf War continued on U.S. financial markets Friday, as stock and bond prices climbed and crude oil slipped even further in a day of jittery trading.
The Dow Jones industrial average jumped 23.27 to close at 2,646.78. Volume was heavy, although lighter than the day before, with about 227 million shares changing hands.
Crude oil fell more than $2 a barrel on the New York Mercantile Exchange to finish at $19.25, its cheapest level since mid-July.
Traders of stocks, bonds, currency, precious metals and commodities continued to take heart in the view that allied forces would soon prevail in the Persian Gulf and Saudi oil supplies would survive largely intact.
“I think the underlying thought that the war is going to be won in short order is dominating the market,” said Stephen H. Axilrod, vice chairman of Nikko Securities Co. International in New York.
There was little of the giddiness that swept the financial world on Thursday, however, when a whopping 318.89 million shares changed hands at the New York Stock Exchange.
In addition to new worries that Israel would jump into the war, rumors of missile attacks by Iraq and a tale that Saddam Hussein had been shot by one of his military officers kept investors off balance.
Nonetheless, the stock market managed to add to its gains from Thursday, when the Dow industrial average rocketed up 114.60 points for its second-largest increase.
“It’s kind of reassuring today. There was a lot of bad news from Israel, yet the market hasn’t sold off,” said Michael Metz, chief market strategist with Oppenheimer & Co. in New York.
In another sign of enduring confidence, the U.S. dollar closed broadly lower, sinking fast in the last hour of New York trading. Investors frequently load up on dollars in times of crisis; a drop in the dollar is consistent with the perception that the crisis is easing.
The dollar fell narrowly against the Japanese yen in New York, to 132.25 yen from late Thursday’s 132.30, and declined to 1.4975 German marks, down from 1.5075. The U.S. currency also fell against the Swiss franc, British pound and French franc.
“The optimistic sentiment seems to prevail that the war is going to be over soon,” said Earl I. Johnson, a vice president at Harris Trust & Co. in Chicago. “The market seems to look beyond the war to the economic prospects ahead.”
Gold prices, which had fallen dramatically Thursday, stabilized Friday, rising 80 cents an ounce to $374.20 on the New York Commodity Exchange.
U.S. Treasury bonds, meanwhile, closed higher for the second straight day. Bond prices vacillated at midday, when rumors swept the markets. The bond rally continued, however, with the price of 30-year Treasury bonds increasing 1/4 point--or $2.50 per $1,000 in face amount. Its yield fell to 8.17% from 8.19% late Thursday.
Despite Middle Eastern uncertainties facing investors, “it’s a recovery move and it looks like it’s got further to go,” said George Constantine, a senior analyst with Merrill Lynch & Co. in New York.
Among the highlights on the New York Stock Exchange:
* In actively traded blue chips, Exxon rose 7/8 to 51 3/4, International Business Machines gained 2 to 117 3/4, Coca-Cola added 7/8 to 48 5/8, Philip Morris climbed 3/8 to 52 1/2 and Du Pont advanced 3/8 to 35 3/8.
* Airline issues, bolstered by lower oil prices, were strong for the second straight session. UAL climbed 2 to 126, AMR rose 1 3/4 to 53 1/4 and Delta Air Lines gained 1 3/8 to 67.
* Kellogg Co. gained 2 1/4 to 78 5/8. The company reported fourth-quarter earnings of 90 cents a share, up from 47 cents a year earlier.
* Schering-Plough, which lost ground Thursday on news that it had halted research of an anti-fungal compound, staged a modest rebound, up 1/8 to 41 5/8.
Shares of Bristol-Myers Squibb added 1/2 to 66 7/8. Shearson Lehman lifted its 1991 earnings estimate after the company reported a good fourth quarter Thursday.
* Among technology stocks, Microsoft added 1 1/4 to 85 1/4, continuing a rally on strong second-quarter results. Donaldson, Lufkin & Jenrette removed the stock from its recommended list based on the sharp price appreciation.
* Shares of Apple Computer fell 1 to 50 1/4, despite reporting stronger first-quarter earnings. Analysts said the profit was significantly boosted by currency rates, and Merrill Lynch downgraded the stock to “neutral” from “above average.”
* Zurn Industries lost 2 1/4 to 30 1/2. The company said Thursday that it expects fourth-quarter earnings to be at least comparable to the 62 cents a share earned a year ago.
CREDIT Bond Prices Seesaw on Hussein Rumors Government bond prices closed higher for the second day, strengthened again by optimism over the U.S.-led attack on Iraq.
The price of the Treasury’s benchmark 30-year bond rose 1/4 point, or $2.50 per $1,000 in face amount. Its yield fell to 8.17% from 8.19% late Thursday.
Prices seesawed during the day as the bond market followed the ups and downs of reports on the war.
Prices slipped at the start of New York trading, as investors reacted to news of an Iraqi missile attack on Israel, said Kathy Camilli, chief economist at Maria Ramirez Capital Consultants Inc. in New York.
But prices changed direction around noon when the market learned several rumors about Iraqi President Saddam Hussein, she said. One said Hussein had been shot by a subordinate, while the second said his family had fled to the west African nation of Mauritania.
The reports, which were not confirmed, sent prices out of negative territory and above their close Thursday, when bond prices jumped in one of their largest one-day climbs.
Thursday’s rally was sparked by euphoria over the successful launch of the attack on Iraq.
The benchmark 30-year Treasury bond soared more than $23 per $1,000 in face value.
Bond prices slumped again Friday after air raid sirens sounded in Israel but recovered when the warning proved to be a false alarm.
The Federal Reserve entered the government securities market Friday in an attempt to soak up excess bond dealer funds that have depressed the federal funds rate, the interest charged on overnight loans between banks.
The rate has fallen in recent days, reaching 6% by late Friday from 6.25% late Thursday.
CURRENCY Dollar’s Late Drop Comes as Surprise The dollar closed broadly lower after sinking in the last hour of trading, surprising analysts who assumed that traders did not want to be caught short over the weekend with the Middle East war under way.
The U.S. currency climbed fitfully during the day after overnight news that Iraq had fired Scud missiles at Israel. But subsequent word that damage was minor undermined the dollar’s appeal as a safe-haven investment during times of international strife.
The dollar closed in New York at 1.4975 German marks, down from 1.5075 marks Thursday, but up to 132.25 Japanese yen from 132.30 yen. The British pound rose to $1.9513 from $1.9340 Thursday.
Other late dollar rates in New York, compared to late Thursday’s prices, included: 1.2560 Swiss francs, down from 1.2680; 5.0930 French francs, down from 5.1170; 1,126.50 Italian lire, down from 1,133.25; and 1.1590 Canadian dollars, down from 1.1597.
COMMODITIES Gold Ends Higher After Day of Swings The news of progress in the Persian Gulf War buffeted the precious metals market, as optimism that the conflict might be brief was coupled with caution about trading on war-charged emotions.
Gold futures gyrated on New York’s Commodity Exchange on word of another possible missile attack on Israel by the Iraqis and an unconfirmed BBC report that Iraqi President Saddam Hussein’s family and top Iraqi officials had fled to Mauritania.
The energy market was pressured throughout the day on indications that Iraq was steadily losing ground against the U.S.-led force attempting to free Kuwait.
On other markets, grain and soybean futures were mostly lower, and livestock and pork futures were mixed.
Gold futures traded on New York’s Commodity Exchange gyrated on the gulf news.
Gold settled 70 to 90 cents higher, with the contract for delivery in February at $375.10 an ounce; silver was 2.6 to 3.3 cents lower, with March at $4.010 an ounce.
Market Roundup, D6
