STOCKS : Dow Loses Fraction as Economic Worries Nip Early Attempt to Rally
Wall Street shifted into neutral Wednesday, closing narrowly mixed as concerns about the economy stifled a broader rally attempt.
The Dow Jones industrial average slipped 0.67 point to 3,026.61, one day after it soared more than 38 points in response to falling interest rates.
Advancing issues narrowly outnumbered losers by a margin of about 9 to 7 on the New York Stock Exchange, as volume steadied at 172.22 million shares.
The market advanced in early trading, continuing the rally that started Tuesday when the Federal Reserve eased credit. But buyers drifted away as the day wore on.
To help the faltering economy, the Fed injected cash into the banking system Tuesday, lowering its target for the federal funds rate--the interest banks charge each other on overnight loans--to 5.50% from 5.75%. Such a move usually pulls other rates lower.
But some Wall Streeters, having seen earlier Fed attempts to stimulate the economy fail, were skeptical that the latest move would succeed, said Dennis Jarrett, a trader at Kidder, Peabody & Co.
Some leery investors apparently are content to wait for even more decisive moves by the Fed. “The next step is for the Fed to cut the discount rate,” said Larry Wachtel, an analyst with Prudential Securities, referring to the Fed’s most important loan rate.
In its latest assessment of the economy, the Fed said Wednesday that prospects for the recovery are darkened by weak retail sales, lackluster factory demand and rising layoffs of state and local government employees.
Despite the market’s hesitancy, the NYSE composite index managed to inch up to a new all-time high, gaining 0.04 point to 213.75.
Among the market highlights:
* The Dow average was weighed down in part by IBM’s drop of 1 3/8 to 99. The Wall Street Journal reported that IBM staffers have expressed their anger with their employer on a computer bulletin board, and the market interpreted signs of dissension as a harbinger of poor times to come at the computer giant.
Some other large tech stocks also weakened, including Digital Equipment, off 2 1/8 to 65 7/8; Hewlett Packard, off 1 to 54 3/8, and Motorola, off 1 1/2 to 65 1/8.
* S&L; generally stocks pushed ahead, building on gains of recent days as interest rates have fallen. H.F. Ahmanson rose 1/2 to 19, Golden West added 3/8 to 41 3/4, Downey Savings gained 1/2 to 16 3/8 and Great Western was up 5/8 to 20 3/8.
* Food and drug stocks, perceived as safe bets in a weak economy, continued to rally. Gerber Products gained 1 to 64 7/8, Quaker Oats jumped 1 5/8 to 61 7/8, Dole Foods advanced 5/8 to 44 1/8, Warner-Lambert rose 1 1/2 to 69 3/4 and Eli Lilly was up 5/8 to 79 7/8.
Biotech stocks, however, were mostly lower. Xoma plunged 2 3/4 to 19 1/4 after Shearson Lehman removed the stock from its growth list. Also, Centocor tumbled 2 7/8 to 32 3/8 after Shearson suggested taking profits in the issue.
* Tenneco shot up 3 1/4 to 39 7/8 as investors registered their approval of the appointment of Michael Walsh, now the president of Union Pacific Railroad, as Tenneco’s new chief executive.
Overseas, Tokyo stocks rose following Wall Street’s Tuesday rally, as the Nikkei finished 226.06 points higher at 23,691.02.
In London, the Financial Times-Stock Exchange 100 index jumped 24.1 points to 2,597.4. In Frankfurt, Germany, the DAX index gained 19.53 points to 1,631.43.
The Mexican market weakened further, though, as the Bolsa index slumped 20.68 points to 1,148.57, even though interest rates in Mexico declined.
The bond market held its ground as a bleak economic portrait offset pressure to take profits after the recent rally.
The Treasury’s 30-year bond slipped 1/16 point, or 63 cents per $1,000. Its yield inched up to 8.18% from 8.17% Tuesday.
The market was steady even as the Treasury sold $12 billion in 10-year notes. Nearly $3 was bid for every $1 in available securities.
“I wouldn’t categorize it as a blinding success, but it was a decent auction,” said Douglas McAllister, analyst at Prudential Securities. The average yield on the 10-year notes was 7.94%.
Bond yields have tumbled in recent days in anticipation of the Fed’s move Tuesday to ease credit to help the economy. Bond traders normally are fearful that easier credit will spur inflation, but the market seems to have dropped its inflation worries as economic signals continue to point to pronounced weakness.
The federal funds rate, the interest banks charge on overnight loans, was quoted late Wednesday at 5.75%, up from 5% Tuesday. Economists said the increase apparently was due to unusual borrowing demand and not to a change in Fed policy.
The dollar drifted higher in light, uneventful trading, following the steep slide of the past week.
In New York, the dollar closed at 1.710 German marks, up from 1.708 Tuesday, and at 136.00 Japanese yen, up from 135.50.
The dollar has plunged of late on new signs of weakness in the U.S. economy and expectations that interest rates are headed still lower. Many global investors have been drawn to the German mark--at the dollar’s expense--in the belief that German interest rates are headed higher despite lower U.S. rates.
Higher interest rates tend to support a nation’s currency by attracting investment.
Live cattle futures hit a three-year low on the Chicago Mercantile Exchange as the market continued to collapse under the weight of ample supplies and slack demand for market-ready animals.
All live cattle and feeder cattle futures fell the permitted daily limit of 1.5 cents a pound. Live cattle for delivery in August finished at 67 cents a pound, the lowest settlement of a near-term contract since Aug. 3, 1988; August feeder cattle ended at 84.12 cents.
Elsewhere, gold futures ended 10 to 30 cents lower on New York’s Comex, with August at $356.60 an ounce; silver was 0.9 to 1 cent higher, with September at $3.97 an ounce.
On the New York Merc, light, sweet crude oil for delivery in September settled at $21.36 per barrel, down 1 cent for the day.
Market Roundup, D8