FINANCIAL MARKETS : STOCKS : Dow Off 5.70 in Mixed Market; Trading Heavy
News that January’s unemployment rate hit a 3 1/2-year high pushed blue chip stocks lower Friday, but most stocks rose on a surprise interest rate cut aimed at pulling the economy out of recession.
The Dow Jones industrial average fell 5.70 points to 2,730.69 but gained 71.28 for the week. In the broader market, advancing issues outnumbered declines by about 5 to 3 in nationwide trading of New York Stock Exchange-listed stocks, with 1,023 up, 605 down and 422 unchanged.
Big Board volume came to 291.60 million shares, with trading driven by last month’s weak jobless report--the first official reading of the economy this year. On Thursday, 204.24 million shares were traded.
“These employment figures put the brakes on everyone who thought a recession would be short,” said McDonald & Co.’s Alice Sadlo.
The Labor Department said the jobless rate rose to 6.2% last month, with payrolls outside the farm sector dropping a steep 232,000. The number of people working fell by 652,000--the steepest fall in almost a decade.
All in all, the data “looked pretty darned weak,” said Peter Canelo, an investment strategist at Bear, Stearns & Co. “The stock market put on a rather spectacular reversal.”
The weak data prompted the Federal Reserve to cut the discount lending rate that it charges banks by a half-point to 6%. It was the second time in six weeks that the central bank cut the high-profile rate.
Several big banks followed suit by lowering the prime rate that they charge on loans to their best customers by a half-point to 9%.
After a three-day run-up in stocks based partly on hopes of a swift turnaround in the economy, news of the big payroll drop triggered sharp profit taking, even as bonds soared.
War news took a back seat to the economic data, which analysts said showed that the recession was far from over.
Among the market highlights:
* Bank issues were broadly higher on the prospect of lower interest rates. Chase Manhattan gained 7/8 to 12 3/4, Citicorp rose 1 to 13 3/4, BankAmerica added 1/2 to 29 7/8 and J. P. Morgan climbed 3/8 to 45 7/8.
* Similarly, in the mortgage-finance sector, Federal National Mortgage rose 1 to 40 5/8 and Federal Home Loan Mortgage advanced 1 5/8 to 63.
* Navistar climbed 1/2 to 3 3/8 in active trading. On Thursday, the company said it planned to eliminate 525 while-collar jobs in a stepped-up effort to cut costs.
* Other gainers among the blue chips that make up the Dow included International Business Machines, up 1/8 at 126 7/8; Boeing, up 3/8 at 49 3/4; Philip Morris, up 1 1/4 at 56 7/8, and Ford Motor, up 1/2 at 28 1/2.
* But American Telephone & Telegraph fell 1 1/8 to 31 1/2 and General Motors was down 1/8 at 36 1/8.
* USX Corp. traded actively, easing 1 3/4 to 29 1/2 after the company said it will issue separate stock for its steel division.
* Marriott Corp. added 2 3/4 to 13 after the company said it had obtained interim bank financing and was delaying or canceling certain construction projects.
In foreign trading, Japanese stocks closed lower amid concern over the leadership of Soviet President Mikhail S. Gorbachev. The 225-share Nikkei fell 136.44 points to close at 23,156.70.
German stocks shrugged off Thursday’s decision by the Bundesbank to raise interest rates and worries about the Gulf War. The 30-share DAX index ended up 6.43 points at 1,426.51, a rise of 44.46 points on the week.
In London, share prices finished slightly lower. The Financial Times 100-share index ended down 4.6 points at 2,165.7.
Credit
Bond prices shot upward in heavy volume following the release of the jobless report and the Fed’s subsequent cutting of the discount rate.
The Treasury’s bellwether 30-year bond rose nearly 1 1/4 points, or nearly $12.50 per $1,000 in face amount, by closing Friday. Its yield, which moves inversely to the price, slumped to 8.09% from 8.19% late Thursday.
Bonds rallied after the Labor Department reported that 232,000 people lost their jobs in January, a much larger decline than had been expected. The unemployment rate rose to 6.2% from 6.1% in December, another sign of the economy’s severe problems.
After release of the report, the Fed swiftly cut the discount rate, the interest it charges on loans to commercial banks, to 6% from 6.5%.
Analysts expect that the move will help to stimulate the economy by encouraging banks to lend more money.
Traders said the market accelerated more on the bad economic news than on the Fed’s move, which some economists had been anticipating. Trading also advanced on a National Assn. of Purchasing Management survey that pointed to further weakness in the manufacturing sector.
“Between the purchasing manager’s survey and the employment data today, it paints a picture of an economy that is still suffering and shows no plans of turning course and starting to improve,” said Jan Hurley, economist for Chase Manhattan Bank.
The Lehman Brothers Daily Treasury Bond Index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, jumped 7.50 to 1,196.50.
The federal funds rate, the interest on overnight loans between banks, traded at 5.5% by closing Friday, down from an unusually high 11% late Thursday.
Economists said the Fed injected more cash into the banking system, setting the perceived target for the federal funds rate at 6.25%, down from the previous target of 6.75%.
Analysts said the funds rate had jumped on Thursday because of the settlement of two large Treasury note issues. The settlement drained funds from the banking system and pushed up the funds rate temporarily.
Currency
The dollar took a pounding overseas and continued to relinquish ground in domestic dealings following the surprise interest rate cut by the Federal Reserve and the worse-than-expected report on the nation’s jobless rate.
The announcement that the Fed had cut the discount rate pushed the dollar lower in U.S. trading.
Low interest rates undermine the U.S. currency by making dollar-denominated securities less valuable to foreign investors.
“The market attempted to take the dollar down to new lows and failed miserably,” said Robert Hatcher, chief dealer at Barclays Bank in New York. “When you combine the fact that German rates rose, the U.S. dropped rates and we had a horrendous unemployment report, the dollar held fairly well.”
Trading was heavy for most of the session.
In New York, the dollar closed at 1.4680 German marks, down from 1.4770 marks at Thursday’s close. Against the Japanese yen, the dollar closed at 131.50 yen, up from 131.26. The British pound rose to $1.9760 from Thursday’s $1.9665.
Other late dollar rates in New York, compared to late Thursday’s rates, included: 1.2525 Swiss francs, down from 1.2579; 4.9960 French francs, down from 5.0245; 1,105.00 Italian lire, down from 1,111.25, and 1.1598 Canadian dollars, down from 1.1633.
Commodities
Soybean futures prices finished narrowly mixed in edgy trading on the Chicago Board of Trade amid uncertainty over the market impact of economic reforms in Brazil, the world’s second-largest soybean producer.
Grain futures finished mixed in Chicago. On other commodity markets, livestock and meat futures were mixed, oil futures fell and precious metals rose.
Soybean futures settled 2 cents lower to 0.75 cent higher, with the contract for delivery in March at $5.67 a bushel; wheat was 1.25 cents lower to 0.50 cent higher, with March at $2.6225 a bushel; corn was 0.50 cent lower to 0.05 cent higher, with March at $2.44 a bushel, and oats were 0.50 cent lower to 0.25 cent higher, with March at $1.09 a bushel.
Crude oil futures fell modestly on the New York Mercantile Exchange in quiet trading as traders awaited news from the Gulf War. There were no dramatic developments Friday as the battle for the Saudi Arabian city of Khafji wound down.
Light, sweet crude oil settled 7 to 25 cents lower, with March at $21.34 a barrel.
Gold settled $1.50 lower to 30 cents higher, with February up 30 cents at $366.10 an ounce. Silver closed at $3.852 an ounce, up from $3.830 Thursday.
Market Roundup, D6
