STOCKS : Profit Taking Drives Dow Index Down 8.17
Blue chip stocks fell on profit taking Friday, giving up a 25-point gain that was scored after the Federal Reserve cut interest rates.
The Fed eased the federal funds rate--the overnight lending rate between banks--in reaction to the steep rise in February’s unemployment rate to 6.5%.
The Dow Jones industrial average ended 8.17 points lower at 2,955.20 after retreating from a high of 2,988.86. But for the week, the Dow was up 45.30 points.
In the broader market, declines led advances 787 to 767 in active New York Stock Exchange trading Friday. Big Board volume was 206.85 million shares, against 197.06 million Thursday.
Analysts said selling flipped the market into the minus column after the Dow index was unable to mount another test of the key 3,000 level. Also hurting stocks: Long-term bond yields jumped despite the Fed’s move.
The Fed’s latest rate cut surprised some economists, who had anticipated that interest rates would stay steady amid hopes that the swift end to the Gulf War could breathe life into the economy.
But others noted that the severe weakness of the jobs data forced the Fed to loosen its grip on the nation’s credit reins to ensure that the economy does indeed rebound in coming months.
“I think the big picture argued for an easing,” said Jerry Zukowski, economist at Paine Webber.
For the stock market, the continuing decline in short-term interest rates is likely to be the catalyst for further gains in the weeks ahead, after a brief digestion period, many analysts say.
Among the market highlights:
* Health-care stocks resumed their leadership position. Abbott Labs gained 1 1/4 to 47 3/8, Community Psychiatric Centers jumped 2 1/4 to 38 5/8 and National Medical Enterprises rose 1 1/4 to 45 3/4. Merck climbed 1 3/8 to 105 5/8. The company’s Zocor cholesterol-lowering drug was approved by an FDA advisory committee.
Biotech star Amgen, however, fell 2 7/8 to 126 1/4 in profit taking.
* Casino firm Circus Circus slumped 1 3/4 to 67 after filing to sell 2.5 million shares to the public. But El Segundo-based semiconductor firm International Rectifier jumped 2 to 19 after announcing Thursday that it will sell 4.2 million shares.
* Federal Home Loan Mortgage rose 2 1/4 to 76 1/4 after raising its quarterly dividend 25%. The Fountain Valley-based health maintenance organization FHP International added 1/2 to 22 1/4 after declaring a 10% stock dividend.
* Reebok soared 1 5/8 to 24 1/8 after analysts made positive comments about the firm.
* Perris, Calif.-based Modtech, which makes modular schoolrooms, plunged 2 to 7 1/2 after losing 2 1/4 on Thursday on a disappointing earnings report.
Overseas, German shares held early gains to close broadly higher, pushing the 30-share DAX index above the psychologically important 1,600 level. It gained 21.83 points to 1,602.29, its highest close this year.
Shares closed higher in London, with the Financial Times 100-share average up 17.3 points to 2,455.0.
In Tokyo, stocks ended at their highest closing level this year. The Nikkei 225-share average rose 209.56 points to 26,607.52.
CREDIT
Long-term bond prices fell as traders became jittery over emerging signs of economic growth.
Analysts described a frustrating day in which bond prices fell despite a higher unemployment report and the Fed’s further cut in the federal funds rate.
Bonds typically would rally on such news. But the Treasury’s 30-year bond fell 31/32 point, or $9.69 per $1,000 in face amount. Its yield rose to 8.30% from 8.21% late Thursday.
The Fed’s move to ease the federal funds rate down 0.25 percentage point to 6% came after the Labor Department released the February unemployment report. The rate drop was a sign that the Fed believes that the economy needs more help to recover.
That caused some traders to dump bonds, however, because of expectations that the rate cut will be the last. Also, some traders may fear that the economy will rebound too sharply, boosting inflation.
CURRENCY
The dollar jumped as traders shrugged off the larger-than-expected increase in the unemployment rate and a surprise cut in the key federal funds rate.
The dollar soared in New York to 1.570 German marks, compared to 1.546 Thursday, and to 136.82 Japanese yen from 135.65.
The Federal Reserve’s trimming of the fed funds rate typically would hurt the dollar because it means investors get relatively better returns on foreign currencies.
But the dollar continued to show strength, as it has since the Gulf War began. “It’s the opposite psychology of two months ago,” said Walter Simon of Bank Julius Baer. “Everything is viewed as positive (for the dollar); it doesn’t matter what the fundamentals are.”
COMMODITIES
Silver prices soared well above $4 Friday as hopes for an economic turnaround continued powering a recovery from 17-year lows.
Silver futures settled up 19.2 to 21.2 cents on New York’s Commodity Exchange, with the contract for delivery in March at $4.16 an ounce, highest daily settlement of silver since Jan. 16.
Gold settled $2.50 to $2.70 higher on the Commodity Exchange, with April at $371.20 an ounce.
Silver has risen 19% since Feb. 22, when it dropped briefly to $3.49 an ounce, a 17-year low.
Don Tierney, metals analyst with Fortune Commodities, said lower interest rates should help stimulate industrial production and thus help silver and platinum.
Market Roundup, D6
