STOCKS : Dow Falls 25.99 After Missile Hits Tel Aviv
Blue chip stocks tumbled Tuesday as Israel came under a new Iraqi Scud missile attack and investors worried about an escalation of the Persian Gulf War.
The Dow Jones industrial average closed down 25.99, or 1%, at 2,603.22.
But in the broader market, advancing issues narrowly outnumbered declining ones in nationwide trading of New York Stock Exchange-listed stocks, with 784 up, 742 down and 446 unchanged.
Big Board volume rose to 175.59 million shares from Monday’s 136.29 million.
After an edgy start, blue chips slumped in late trading on news that Iraq had fired more missiles at Tel Aviv.
“The (stock) market just lost it on that news,” said Alice Sadlo, a vice president at McDonald & Co. “The biggest fear is that Israel will try to retaliate, and that would have a definite effect on the U.S. part in the war.”
Michael Metz, a market strategist with Oppenheimer & Co., said, “The fear is that the best of the news on the brevity and success of the war is past. All the news is getting a little worse.”
Oil prices, reacting to reports of torched wells and refineries in Kuwait, jumped $2.88 a barrel.
Investors also refocused their attention on the weak U.S. economy, as fourth-quarter earnings reports rolled in. Federal Reserve Chairman Alan Greenspan sparked a flurry of selling in the morning session when he hinted at a congressional hearing that there would be no aggressive cutting of interest rates.
Although he later left the door open to looser credit if banks fail to lend, investors seemed little comforted. (Related stories, D1, D3.)
“I’m not sure that the Fed will be in the mood to lower rates if the war goes on longer,” said Jack Barbanel, president of First Global Asset Management.
Among the market highlights:
* Disappointing earnings reports sent numerous industrial stocks lower, including Reynolds Metals, off 3 1/2 to 55 3/8; Caterpillar, down 1 5/8 to 42 7/8, and United Technologies, off 3 1/8 to 43 5/8.
* Telephone stocks also were pummeled by weak earnings reports. Pacific Telesis plunged 3 1/8 to 41 1/4 and Bell Atlantic lost 4 to 50. (Related story, D3.)
* Among Southland stocks, good earnings reports helped electrical products firm MagneTek rise 1/4 to 11 1/8 and hospital firm Summit Health jump 7/16 to 3. But LA Gear continued to drop on weak earnings, falling 1 to 9 1/2.
* Mattel slipped 7/8 to 18 5/8. Kidder Peabody took the stock off its “focus” list, though still rated it a buy. Kidder expects Mattel to report weaker earnings for the fourth quarter, because of writeoffs for accounts receivable at troubled toy retailer Child World.
* Many defense stocks continued to climb. General Dynamics soared 1 3/8 to 30 5/8, and McDonnell Douglas gained 3/4 to 37. Also, American Pacific, a Las Vegas-based maker of solid rocket propellant used by the military, soared 2 7/8 to 12.
* Raytheon, maker of the Patriot missile that has been used to intercept some of Iraq’s Scud missiles, added 1 3/4 to 76 3/8, helped by the company’s earnings report.
* Security Pacific climbed 1 5/8 to 20 1/2 and Wells Fargo gained 2 1/4 to 56 7/8 after a news report that both had held merger talks.
Among S&Ls;, Glenfed rocketed 3/4 to 4 1/4. The stock, down sharply in recent months, may have been helped by “short” covering. Coast Savings rose 3/8 to 2 7/8 despite selling 19 branches for less than expected.
* Dillard Department Stores tumbled 7 3/8 to 86 1/8. Traders said the stock was removed from Smith Barney’s recommended list. Prudential-Bache continued to recommend the stock but lowered 1991 and 1992 earnings estimates.
Most overseas markets closed lower. London’s Financial Times 100 index dropped 2.40 to 2,081.60. The Frankfurt market’s DAX index lost 15.08 to 1,375.12.
In Tokyo, the Nikkei index dropped 98.54 to 23,253.65.
CREDIT Bond Prices Buffeted From Several Fronts Government bond prices were mostly lower as the market reacted to Iraq’s new attack on Israel.
The Treasury’s 30-year bond fell 13/32 point, or $4.06 per $1,000 in face amount. Its yield rose to 8.24% from 8.21% late Monday.
Bond prices moved higher on Fed Chairman Greenspan’s remarks that the inflation outlook had improved. Bonds were also boosted on initial news that American Patriot missiles had shot down Iraqi missiles hurled at Israel.
But prices slipped after it became known that one of the Scud missiles slipped through and hit Tel Aviv. And some traders worried that Greenspan was precluding further cuts in interest rates.
Federal funds, the rate banks charge one another for overnight loans, were trading at 6.5% late Tuesday, up from 6% late Friday. The funds didn’t trade Monday on the Martin Luther King Jr. holiday. The government’s perceived target for the rate is 6.75.
CURRENCY Dollar Surges on Fed Chief’s Remarks The dollar gained strongly on Greenspan’s remarks, expecting U.S. interest rates to remain firm.
The market’s focus on economics for the second-consecutive trading day boosted speculation that the war has lost some of the effect that it has exerted on currency markets since the troop buildup in the gulf.
But late in Tuesday’s session, the dollar was pushed even higher by the missile attack by Iraq on Tel Aviv. The attack reminded the markets that the dollar still is considered a safe haven during times of war.
In New York, the dollar jumped to 1.497 marks from 1.487 late Monday. It also rose to 132.68 yen from 131.95 Monday.
The British pound fell against the dollar in New York, fetching $1.945, compared to late Monday’s $1.961.
COMMODITIES Pork Belly Futures Drop Trading Limit Near-term pork belly futures plummeted the 2-cents-a-pound daily limit on the Chicago Mercantile Exchange before a weekly exchange report, released after the close, that showed a nearly 400,000-pound increase in frozen belly stocks in commercial freezers outside Chicago, contrary to the seasonal pattern.
The February contract closed at 67.12 cents a pound, down 2 cents.
On other commodity markets, the drop in pork belly futures lead most livestock futures lower, soybean futures rose sharply while grains were mixed and precious metals rose slightly.
About 2.4 million pounds of pork bellies were taken from freezers during the same week last year to be thawed, cured and sliced into bacon.
“We normally take bellies out of storage during the month of January because the slicer demand normally runs greater than fresh production can satisfy,” said Charles K. Levitt, senior livestock analyst with Shearson Lehman Bros. Inc.
But he said that hog slaughters this month have been running higher than most analysts expected and that slicer demand has been unexpectedly light. Hog futures fell along with bellies, but cattle futures ended mixed in choppy trading before Friday’s quarterly USDA cattle-on-feed report.
Levitt predicted that the tally of feedlot cattle in the 13 largest producer states will be 9% above a year ago at 10.9 million head, which would be the highest Jan. 1 number since 1979.
Elsewhere, gold futures finished 60 to 80 cents higher on New York’s Commodity Exchange, with January at $379.40 an ounce; silver was 0.9 cent to 1.2 cents higher, with January at $4 an ounce.
Market Roundup, D6
