STOCKS : Technology, Drug Issues Boost Dow
A flurry of buying in technology and drug stocks helped turn an almost daylong slump into a strong gain on Wall Street Monday.
The Dow Jones industrial average closed up 29.52 points, or 1%, to 2,961.99. Earlier in the session, the index had been down more than 27 points.
Winning stocks topped losers 891 to 630 on the New York Stock Exchange, though trading volume remained moderate at 138.2 million shares.
Wall Street spent much of the session lower after Tokyo stocks plunged anew overnight. The Japanese market was hit by reports that the Ministry of Finance would set sanctions against big brokerages that improperly covered favored clients’ losses last year.
The 225-share Nikkei average tumbled 722.17 points, or 3.2%, to 22,176.17 on Monday. After the market closed, four Japanese brokerages were ordered to limit all business at their corporate divisions for four business days beginning Wednesday, as punishment for their role in the scandal.
Early today, Tokyo stocks recovered early on, then quickly slumped further. The Nikkei was off 416.89 points to 21,759.28 in late-morning trading--the first time it has broken 22,000 since last December.
On Wall Street, some traders said bargain hunters were especially active in the tech area, where stocks have been beaten mercilessly for weeks as corporate profit prospects have faded.
But other traders said much of the buying Monday was attributable to short-sellers who were covering their positions, having correctly bet in recent weeks that stocks would tumble. In a short sale, a trader sells borrowed stock betting it can be replaced later at lower prices.
“I think there was an enormous amount of short-covering. Everybody in the world is bearish,” said analyst Tom Gallagher at Oppenheimer & Co.
Many potential buyers appeared to be in no rush to jump into the market. “There’s a renewed backup in interest rates, and that makes bonds more competitive,” said Marshall Acuff, strategist at Smith Barney, Harris Upham & Co. “There’s also some anxiety about second-quarter (corporate) earnings, which should start to flow pretty profusely this week.”
Among the market highlights:
* Tech stock leaders included Digital Equipment, up 3 5/8 to 63 1/4. An Alex. Brown analyst recommended the stock, which has fallen from a high of 83 this year.
Other techs benefiting from bargain-hunting and short-covering included Storage Technology, up 3 to 41 5/8; Silicon Graphics, up 2 7/8 to 30 7/8; Hewlett-Packard, up 2 3/8 to 53 1/8; Intel, up 1 1/4 to 44 1/8, and Apple, up 1 1/8 to 44 1/8.
Microsoft jumped 5 1/4 to 67. Goldman Sachs repeated a “buy” rating on the company. Goldman also recommended AST Research, adding the stock to its buy list. AST leaped 2 to 22 3/4.
* In the health-care sector, biotech stocks were strongest. Amgen soared 5 3/4 to 122, Centocor rose 3 to 37 1/4, Genzyme leaped 2 to 32 1/4 and Cytogen gained 1 1/4 to 17 1/4.
Among HMOs, PacifiCare soared 2 to 37 1/2. Merrill Lynch upgraded its long-term rating on the Cypress-based firm to “buy” from “above average.” Meanwhile, rival FHP International tumbled 1 1/4 to 22 1/4, continuing to lose ground on allegations that it is using hard-sell tactics to get senior citizens to sign up for its HMO program.
* Among other Southland issues, Disney rose 1 1/8 to 119 3/8 even though Oppenheimer & Co. cut earnings estimates for 1991 from $5.30 a share to $5.05. Western Waste added 3/4 to 18 1/2 after signing a five-year waste-management contract with the city of Redondo Beach. Food wholesaler Rykoff-Sexton rose 3/8 to 22 5/8, a new 52-week high.
L.A.-based Craig Corp., which has major stakes in Stater Bros. supermarkets and Fidelity Federal Savings, jumped 2 3/8 to 18 1/2. A Business Week article noted the stock sells well below the estimated value of the firm’s assets, often said to be in the $30-a-share range. The stock periodically jumps on asset-value speculation.
In overseas trading, Tokyo’s troubles pushed London stocks lower. The Financial Times 100-share average lost 17.9 points to 2,466.8. In Frankfurt, the DAX average fell 13.87 points to 1,605.04.
Credit
Bond prices were mixed in moderate trading as investors reacted to Friday’s report on June employment and awaited an important auction of seven-year notes later this week.
The Treasury’s bellwether 30-year bond was down 1/16 point, or 63 cents per $1,000 in face amount, at closing. Its yield held at 8.49%.
The market traded in a narrow range during the day, with the yield of the 30-year bond staying below 8.50% during most of the session, said Robert Brusca, chief economist for Nikko Securities Co. International.
Short-term securities rose on turmoil in international stock markets overnight, he said.
With little fresh economic news during the day, bond traders continued to react to the June employment report, which showed a rise in labor costs and amount of overtime worked, said Kevin Flanagan, a money market economist for Dean Witter Reynolds Inc.
The report said labor costs rose 0.6%, bringing the average hourly wage to $10.38 an hour. The market interpreted that news as an early indicator of inflation.
Bond prices generally fall on news of inflation, which hurts the value of fixed-income securities.
Flanagan said trading would continue to be moderate until Friday’s reports on producer prices and retail sales for June, which should provide further clues on the direction of the economy.
Other analysts are awaiting Wednesday’s auction of $9 billion of 7-year notes. Flanagan said traders are watching the success of the auction to assess the beginning of the Treasury’s refunding of government operations for the third quarter.
The federal funds rate, the interest on overnight loans between banks, rose to 5.938% from 5.675% late Friday.
Currency
The dollar lost ground against major currencies amid speculation about higher German interest rates and an easing of tensions in Yugoslavia.
Dealers said traders were uncertain over whether the German Bundesbank’s policy-making council would move Thursday to raise German rates. The mark, like all currencies, is supported by higher interest rates.
The German currency also was supported by apparent moves Monday toward peace in Yugoslavia. Slovenian and federal leaders agreed on a formula that would give the republic limited control of its borders.
The dollar fell in New York to 1.805 marks from Friday’s 1.826.
The Japanese yen, meanwhile, continued to be battered by news of Japan’s securities scandal. The dollar edged up in New York to 138.55 yen from Friday’s 138.30.
Belal Khan, trader for Fuji Bank Ltd. in New York, said the dollar was also undermined by a growing feeling that the U.S. economic recovery may be slower than expected. The sentiment came on the heels of Friday’s government report that the nation’s unemployment rate reached 7% in June.
The British pound also gained in New York, where sterling fetched $1.6345, more expensive than late Friday’s $1.6173.
Other late dollar rates in New York, compared to late Friday’s rates, included 1.5584 Swiss francs, down from 1.5745; 6.1325 French francs, down from 6.1840; 1,345.75 Italian lire, down from 1,358.00, and 1.14565 Canadian dollars, up from 1.14385.
Commodities
Soybean prices sagged to their lowest level in more than 3 1/2 years on the Chicago Board of Trade amid forecasts for beneficial rain in the Midwest and expectations for continued weak export demand.
Corn futures slumped to their lowest point since August, 1989.
Soybean futures plunged 9.25 to 13.25 cents, with the contract for delivery in July at $5.208 a bushel, the lowest for a near-term soybean contract since September, 1987.
Corn was 0.75 cent to 7.25 cents lower, with July at $2.237; wheat finished 4.25 to 10.25 cents lower, with July at $2.51 a bushel.
Soybean and corn prices were pressured by forecasts for a wet week in the Midwest, slack overseas demand for U.S. grain and a lack of positive fundamentals to interrupt the downward momentum that has gathered strength in recent weeks.
Weather forecasters predicted that those parts of the Corn Belt missed by beneficial showers over the weekend will get some relief this week. Rain was falling in northeastern Nebraska by midafternoon and moving east.
Elsewhere, oil prices rallied on the New York Mercantile Exchange in response to a pipeline problem in the North Sea and anticipation that gasoline demand might pick up.
Light, sweet crude oil settled 20 to 35 cents higher, with August at $21.24 a barrel.
Gold ended 50 cents higher across the board on New York’s Comex, with August at $372.10 an ounce; silver was 1.7 to 2.6 cents lower, with July at $4.467.
Market Roundup, D10
