Dow Falls 12.75 on Reports of Weak Economy : Market Overview
* Stock prices fell as investor sentiment turned bearish when the Federal Reserve failed to lower the discount rate despite bleak economic reports.
* The Dow Jones industrial average fell 12.75 points to 3,056.35.
* Treasury securities prices were mixed despite an increase in the jobless rate and a decline in a key economic forecasting index.
Stocks
The Dow was down about 20 points at midmorning. It rebounded to the plus side in the afternoon before falling again. For the week, the average was up 51.43 points.
Declining issues slightly outnumbered advances on the New York Stock Exchange.
Big Board volume totaled 206.48 million shares, up from Thursday’s 182.23 million.
The day began with a fresh set of government data showing a weak economy.
The Labor Department reported that the unemployment rate rose to 6.8% in October from 6.7% in September, the latest sign of a weak economy.
The Commerce Department released a report showing the index of leading economic indicators down 0.1% in September. Economists use the index to predict the economy’s activity six to nine months from now. The drop added to the belief that the economy has lost ground after a brief summer recovery.
“I think the employment numbers--and the weak economy they portend--mean the President’s pressure on the Fed will be successful,” said Gene Jay Seagle, director of technical research at Gruntal & Co. “Economic pressure means political pressure.”
Analysts said computer-driven trading programs exaggerated Friday’s move, as many investors remained on the sidelines after the data.
Among the market highlights:
* RJR Nabisco Holdings was the most active issue on the New York Stock Exchange, gaining 3/8 to 10 1/2 on volume of 6 million shares. The company said it began a preferred-share offering.
* Intel jumped 1 1/4 to 41 7/8. Traders said Merrill Lynch & Co. upgraded its long-term rating to buy from above average and raised earnings estimates.
* UAL slipped 3 1/2 to 129 1/4. Traders said Prudential Securities lowered its rating on the stock after the company posted disappointing earnings.
* Household International continued to slip, losing 2 1/8 to to 47 3/4, after it said it no longer expects record earnings in 1991. Paine Webber Group Inc. lowered its rating and estimates.
* Some computer stocks were down. Dell Computer eased 2 1/4 to 22 5/8. AST Research slipped 2 1/8 to 19 1/2. But software firm Borland International advanced 2 3/8 to 69 3/4.
* In NASDAQ trading of over-the-counter stocks, Alteon soared to 28 3/4 on heavy volume after an initial public offering at $15 a share. But the NASDAQ composite index dropped 2.05 to 540.93 after hitting a new high Thursday.
In Tokyo, the 225-share Nikkei average fell 178.04 to 25,044.24. In London, the Financial Times 100-share average closed down 16.5 points at 2,549.5. In Frankfurt, the 30-share DAX average lost 8.51 points to close at 1,573.55.
Credit
The government’s key 30-year bond rallied after release of the unemployment rate.
But late in the session, institutional investors and others began a rapid selloff, sharply depressing the price.
The 30-year issue closed down 1/4 point, or $2.50 per $1,000 in face value. Its yield rose to 7.93% from 7.91% Thursday.
The bond rally reflected the fact that a string of economic reports showed the economy limping along.
The federal funds rate, the interest on overnight loans between banks, traded at 5%, down from 5.188% Thursday.
Currency
The dollar plunged in heavy trading after the Commerce Department released a pessimistic report on leading economic indicators.
“The dollar is sitting on its lowest levels in quite a few months, based on a continued, clearly weak economic picture,” said John McCarthy, chief dealer at ABN-AMRO Bank NV.
The dollar broke through the critical technical and psychological support level of 1.658 German marks, which prompted even more selling. It closed in New York at 1.645 marks, down from Wednesday’s 1.672.
“With prospects of continued pressure on interest rates in the U.S. and with firm interest rates in Germany, the mark zoomed against the dollar and other major currencies,” said Ronald Holzer, chief dealer at Harris Trust and Savings Bank in Chicago.
The dollar settled at 129.73 Japanese yen, down from 130.75. The British pound rose to $1.7675 from Thursday’s $1.7395.
Commodities
Soybeans for near-term delivery rose sharply on the Chicago Board of Trade amid expectations that there will be an announcement soon on Soviet food aid and on worries about the availability of near-term supplies.
Grain futures also settled mostly higher in Chicago.
On other commodity markets, oil futures rose, precious metals fell and livestock and meat futures were mixed.
Soybeans for delivery in November rose 9.25 cents to $5.673 a bushel. Other soybean contracts rose from 0.50 cent to 6.50 cents.
Oil prices surged on the New York Mercantile Exchange on fears that storms in the North Sea could delay tanker shipments. Light sweet crude for delivery in December settled at $23.82 per barrel, up 45 cents.
Precious metals fell on New York’s Commodity Exchange, led by a late drop in gold prices after the gold market failed to rally in reaction to a weaker dollar. December gold dropped $2.60 to $356.90 an ounce; December silver fell 4.5 cents to $4.063 an ounce.
