Dow Jumps 40 Despite Early Jitters : Markets: Bargain hunters help blue chips to their best showing since Oct. 28.
Blue chip stocks rebounded swiftly to close sharply higher Monday after shaking off a deep bearish mood stemming from worries about the health of the world economy.
The Dow Jones average of 30 industrials finished with a 40.70-point gain at 2,935.38, its best showing since Oct. 28, when it also posted a 40.70-point rise.
In the broader market, advancing issues outnumbered declines by about 6 to 5 on the New York Stock Exchange.
Big Board volume came to 188.34 million, up from Friday’s 78.64 million.
The 30-share average was down more than 25 points early in the session as economic jitters sent overseas stock markets free falling. Traders were faced with news of a 3% drop overnight in the Tokyo market and weakness in other financial capitals as well.
In addition, a group of corporate purchasing executives reported that growth in the manufacturing economy slowed significantly in November as production and orders for new business lost momentum.
The National Assn. of Purchasing Management said its monthly index of business activity skidded to 50.1% from 53.5% in October.
The drop in the index brought it to the point where it indicated a stagnant manufacturing economy.
With all that, however, the early gloom that pervaded the market gave way to buying by traders who evidently had been growing impatient waiting for a “bargain-hunting” opportunity.
Analysts said the rally, mostly in blue chip stocks, was ignited by program buying, short covering and bargain hunting.
The market was also gearing for today’s report on the leading economic indicators for October and Wednesday’s first revision of third-quarter gross national product.
GNP growth was initially reported at 2.4%, but economists are predicting an upward revision to 2.9%. The leading indicators are expected to be up 0.1% after a 0.1% drop in September.
Alfred Goldman, technical research director at A. G. Edwards, said the rally was merely an oversold recovery in a market that has yet to complete a correction.
Among the market highlights:
* Speculation that Unisys is the target of a takeover drove its stock up 1 3/8 to 5 1/8 on very active NYSE volume of 8.9 million shares.
* International Business Machines continued to lose ground, dropping 1/8 to 92 3/8 after hitting a session low of 90 5/8. Soundview Financial Group cut its short-term rating on the computer giant, citing concern about its 1992 outlook.
* Another technology stock that drew sellers was Digital Equipment, which dropped 1 3/4 to 61 1/4. Merrill Lynch lowered its second-quarter and 1992 earnings estimates on the company.
* Teradata jumped 5 1/8 to 28 7/8. AT&T; has agreed to acquire the computer maker for $520 million in stock.
* American Cyanamid rose 1 7/8 to 55 3/4. Dean Witter repeated its buy rating on the company and on Imcera Group, which rose 7/8 to 34.
* American Home Products climbed 2 1/8 to 76 3/8. Merrill Lynch raised its rating and 1992 earnings estimate on the company.
* RJR Nabisco joined the NYSE’s most-active list, ending unchanged at 9 7/8. Oppenheimer upgraded its rating to buy from market performer and placed the stock on its recommended list.
Overseas, stocks closed below 22,000 in Tokyo for the first time since Aug. 28 as arbitrage computer sell programs pounded the Nikkei average. The 225-share average ended down 695.06 points, or 3.06%, at 21,992.29.
Frankfurt stocks slipped 1.4%. The 30-share DAX average finished at 1545.44, 21.13 points down from Friday’s close.
British shares managed to claw back at the end of a depressed but volatile day in London to close with only small losses. The Financial Times 100-share average was off 5.3 points to 2,414.9.
Bond prices rose in cautious trading, gaining little inspiration from the purchasing managers report.
The price of the Treasury’s bellwether 30-year bond rose 11/32 point, or $3.44 per $1,000 in face amount. Its yield was 7.90%, down from 7.93% Friday.
The decline in the Japanese stock market overnight pushed Treasury prices higher in foreign trading, but long-term bond prices opened only slightly higher in New York.
The bond lost most of those overnight gains because market participants continue to worry that Washington will pass a tax cut package to stimulate the economy. Such a move may exacerbate inflation, they say, which would reduce the value of fixed-income securities.
Medium-term securities, such as two-year and 10-year issues, staged modest gains in the session. The rise is part of a recent trend in which investors have been buying medium-term issues because of uncertainty about inflation.
The federal funds rate, the interest on overnight loans between banks, rose to 5% from 4.813% Friday.
The dollar ended mixed against key foreign currencies.
It was weakened at first by anxiety over the early drop in U.S. stock prices and later by pessimism over the American economic outlook.
Foreign exchange traders said the dollar declined early in the day on news of a big drop in the Tokyo stock market. Traders reasoned that the Tokyo decline would spill over into the U.S. market, weakening the value of American stocks and lessening foreign appetite for dollar-denominated investments.
The greenback fetched 1.615 German marks in New York, down from 1.624 Friday. It was worth 130.15 Japanese yen, higher than Friday’s 129.93.
Other rates in New York, compared to Friday: 1.429 Swiss francs, down from 1.434; 1.134 Canadian dollars, down from 1.135; 5.517 French francs, down from 5.548, and 1,218.00 Italian lire, down from 1,223.00.
Grain and soybean futures prices rose on the Chicago Board of Trade in a late rally inspired by news that the Soviet Union and United States had agreed on a food-aid package.
On other commodity markets, coffee futures advanced, oil futures fell, precious metals were lower and livestock and meat futures were lower.
Wheat for delivery in December rose 2.75 cents to $3.71 a bushel, December corn rose 3.50 cents to $2.423 a bushel, December oats slipped 0.25 cent to $1.24 a bushel and January soybeans rose 7.50 cents to $5.64 a bushel.
Energy futures declined on the New York Mercantile Exchange, pressured by an overabundance of heating oil. Light, sweet crude oil for delivery in January fell 40 cents to $21.08 barrel, and January heating oil fell 1.64 cents to 61.51 cents a gallon.
Meanwhile, precious metals retreated as the dollar rose against other currencies, eliminating a supportive factor for the metals.
Gold for December delivery fell 90 cents to $367 an ounce on New York’s Commodity Exchange; December silver fell 0.7 cent to $4.05 an ounce. And January platinum tumbled $5.10 to $365.50 an ounce on the New York Mercantile Exchange.