Dow Rallies on Favorable Economic News
Market Overview
Highlights of Thursday’s market activity, compiled from Times staff and wire reports:
* Stocks closed sharply higher after reports of continued subdued inflation and lackluster retail sales in November. Buyers sense new interest rate declines coming. The Dow Jones industrial average jumped 29.75 points, or 1%, to 2,895.13.
* Long-term Treasury bond yields tumbled after Treasury Secretary Nicholas Brady repeated that he would consider cutting back on the sale of 30-year bonds.
* Gold prices plunged in a selloff possibly triggered by easing fears of chaos in the Soviet Union.
Stocks
The latest November economic reports--showing a 0.3% rise in retail sales and a 0.2% rise in wholesale prices--cemented the view of a struggling economy, but not one in a steep downward spiral.
The reports gave new hope that the Federal Reserve will continue to ease interest rates to help spur economic activity.
Meanwhile, another report showed a decline of 61,000, to 414,000, in initial claims for state unemployment insurance during the week ended Nov. 30. Analysts cautioned that the data was probably skewed by the Thanksgiving holiday. Still, the drop was larger than expected, and helped ease worries that the economy is in a free-fall.
The economic news helped prime stocks for a rebound, after the heavy selling of recent weeks. Analysts noted that the Dow was able to rally convincingly from the 2,850 mark, which has been a key level of support for the index since the Persian Gulf War.
On the New York Stock Exchange, advancing issues outnumbered losers by 10 to 6; volume eased to 192.97 million shares from 207.53 million Wednesday.
Wall Street also got a lift from a rally overseas Thursday. In Paris, the CAC 40 index jumped 26.06 points to 1,671.62, and London’s Financial Times-Stock Exchange index soared 43.1 points to 2,423.30.
In Frankfurt, the 30-share DAX index climbed 2.80 points to 1,546.39. In Tokyo, the Nikkei average gained 209.67 points to 21,712.57.
Among the U.S. highlights:
* Airline and railroad stocks led the way, after heavy selloffs in recent weeks. Conrail rocketed 4 1/8 to 71 7/8, Delta Air rose 2 3/8 to 61 1/4, and UAL, parent of United Airlines, jumped 6 1/8 to 124 3/4.
* California bank stocks soared after Wells Fargo predicted a smaller-than-feared fourth-quarter loss. Wells gained 3 1/4 to 60 1/2, BankAmerica added 2 1/2 to 33 1/2, and First Interstate rose 2 to 27 3/4.
* Drug stocks were strong. Pfizer leaped 2 3/8 to 72 3/8, Warner-Lambert rose 1 3/8 to 69 3/8, Syntex added 1 to 42 1/2, and Alza gained 1 1/4 to 87 1/4.
* Some battered industrial stocks and oil issues were picked up by bargain hunters. Caterpillar rose 1 3/8 to 40 3/8, Ingersoll-Rand was up 1 3/8 to 43 3/4, Eaton added 1 7/8 to 58 1/2, Arco rose 2 3/8 to 102 7/8, and Chevron gained 2 to 66 3/4.
* Among entertainment issues, Cap Cities/ABC jumped 9 3/4 to 370, and casino firm Mirage Resorts leaped 1 7/8 to 25. Brokerage Oppenheimer & Co. issued an aggressive short-term buy on Mirage.
* Precious metals issues were dumped as gold and silver prices fell. Newmont Gold dropped 2 1/8 to 40 1/8, Homestake Mining slid 1/2 to 15 1/8, and ASA Ltd. fell 1 1/2 to 47 3/4.
* Also on the downside, computer firm Cray Research plummeted 5 5/8 to 39 after the company suggested that results would be soft in 1992. And motorcycle giant Harley-Davidson tumbled 1 7/8 to 38 1/2 after the firm said production rates for its cycles are below plan because of a plant problem.
Credit
The yield on the Treasury’s benchmark 30-year bond slid to 7.75% from 7.80% on Wednesday as the price rallied 17/32 point, or $5.31 per $1,000.
Treasury Secretary Brady, appearing before the Senate Finance Committee, repeated that the Treasury was studying the possibility of curtailing or even terminating its auctions of 30-year bonds as a way to cut government borrowing costs--since long-term interest rates are much higher than short-term rates now.
If the Treasury follows through, it could reduce the supply of long-term bonds, increasing their value. However, many traders doubt that the Treasury could successfully push more of its debt to shorter terms.
The federal funds rate, the interest on overnight loans between banks, rose to 4.675% from 4.25% late Wednesday.
Currency
The dollar got a lift from economic and political factors.
The government’s latest economic reports didn’t paint as gloomy a picture of the economy as some currency traders had feared, so that lent support to the dollar. Meanwhile, worries about further unrest in the Soviet Union depressed some European currencies, which benefited the dollar.
In New York, the dollar closed at 1.583 German marks, up from 1.577 Wednesday. It closed flat against the Japanese yen, at 129.30.
Commodities
Precious metals prices fell sharply Thursday--to their lowest levels in more than a month--as commodity funds led a selloff possibly triggered by easing fears of chaos in the Soviet Union.
On New York’s Commodity Exchange, gold for delivery in December dropped $8.60 to $358 an ounce; December silver dropped 8.8 cents to $3.82 an ounce.
Gold futures fell as much as $10 an ounce during trading as signals to sell were tripped at several major brokerage houses, which dumped at least some of their holdings.
Meanwhile, gasoline led energy futures higher on the New York Merc. It was the oil market’s strongest performance in a month and partly reflected reports of Iraq’s unwillingness to meet the United Nations’ conditions for allowing Iraq to resume oil exports.
Light, sweet crude oil for January rose 45 cents to $19.96 a barrel, while unleaded gasoline surged 1.15 cents to 54.58 cents a gallon.
